Do you think that because you pay electronically you no longer have to worry about payment fraud? Or, do you believe that just because you don’t make payments electronically you don’t have to be concerned about electronic payment fraud? Unfortunately, if you answered affirmatively to either of these statements you are in for a rude awakening.

Background

Electronic fraud covers both ACH (automatic clearing house) credits and debits. In fact, it’s the debits that can cause the problem. With the right information it is very easy to commit electronic payment fraud. And, getting that requisite information is not difficult. Luckily, for now, crooks have not caught on and they still focus primarily on check fraud. This is not to say that electronic payment fraud doesn’t occur today. It most definitely does — just not as frequently as check fraud.

Many organizations do not take the appropriate steps to protect their bank accounts because they do not make electronic payments. This is a big mistake. Everyone is vulnerable whether you make electronic payments or not.

Protecting Your Bank Accounts

Whether you make electronic payments or not, you can use the following tools to protect your accounts:

• ACH Blocks. ACH blocks are the simplest of all the products to use. They allow companies to notify their banks that ACH debits should not be allowed on certain accounts. With a block in place, no ACH debit, even one that is authorized, will be able to get through on a given account. Everyone is advised to put blocks in place on all accounts where ACH activity is not likely to be used.
• ACH Filters. An ACH filter allows organizations to give their banks a list of companies authorized to debit their accounts. The banks will then “filter” incoming debits and allow through only those that are on the list submitted earlier. This filter does not check for dollar amounts or whether the particular transaction has been authorized, only that the company doing the debiting is on the approved list.

What About Positive Pay for ACH?

A robust positive pay product for the ACH environment is not universally available today, but it is on its way. AICPA Corporate Finance Insider readers should be aware that this product is sometimes referred to as ACH positive pay, although that may not be the ideal appellation. The line is blurred even further because some banks match the identities of those attempting to debit an account with those on the list provided by the company, and exceptions are reported to the customer to review before payment. Only authorized electronic transactions are allowed to be withdrawn from your account.

Best Practices

Managing your bank accounts in an electronic payment environment requires special consideration. If you are using ACH blocks, keep track of which accounts you have put blocks on. Otherwise, you could end up with egg on your face when a vendor is given authorization to use an ACH debit and everyone has forgotten that the block was put on the account a year or two earlier.

Many companies put ACH blocks on all accounts but one, thus enabling them to accommodate a few vendors (or taxing authorities) that insisted on using an ACH debit.

Concluding Thoughts

As payment activity moves away from paper checks and regulators work to make it harder for crooks to profit from check fraud, it is only a matter of time before the fraudsters focus on the ACH world. By putting the appropriate controls in place in your organization, these thieves will need to look elsewhere for a target to defraud.

Mary Schaeffer is the author of a dozen business books including the just-published Travel & Entertainment Best Practices (2007 John Wiley & Sons). She serves as the editorial director of Accounts Payable Now & Tomorrow, a newsletter for professionals interested in payment issues and directs the organization’s consulting practice. She writes a free ezine for those interested in payment issues (sign up at www.ap-now.com/ezinesignup.html).