Fraud: A Question of “When” Not “If”

Type in “impacts of cyber fraud on businesses” and you will find hundreds of links that make you wish you were an entrepreneur in the pre-internet era. As The Entrepreneur’s Banker, I make it a point to talk to everyone I can about the current fraud trends and how to reduce their risk.

I have direct experience with a client who had fraud on their bank account. Let me tell you, that was one of the top 5 most stressful situations that I have ever been a part of. Long story short, the FBI got involved, and we foiled a major fraud ring. Even though we got the bad guys, that is something I don’t want to experience ever again.

In my opinion, here are 3 keys to understanding and protecting yourself against fraud:

1.     Don’t ignore the threat. The FBI has an entire division that deals with cyber fraud, and it estimates that 2019 worldwide cyber security spending will exceed $90 Billion. This is a real threat and ignoring it will not make it go away

2.     Engage an expert who is qualified to assist with the technical aspect of your protection. I’m not qualified to talk about technical aspects of how to protect yourself and your business. Thankfully, you can consult your IT specialist. If you don’t have an IT specialist, I would recommend hiring one. This is one of the areas that the lowest cost option is not always the best.

As a general rule, make sure your antivirus program is up to date and installed on all your computers. I would also not open any attachments from a long-lost cousin who happens to be a Nigerian prince that won a winning lotto ticket and an oil well in a card game. All he’s asking is for your routing and account numbers so that he can give you half of the winnings.

3.     Talk to your banker about their fraud policies, what they do to protect and safeguard your information, and the solutions that they offer. When thinking about your banking relationship and fraud, here are some low-cost solutions that you can implement:

• Check your accounts, credit cards, and lines of credit every day for activity and current balance. You can quickly see any fraudulent activities and immediately block or close the impacted account.
• Set alerts (text, email or phone call) that notify you if there is abnormal activity or if your account goes below a certain balance. For example, receive a text anytime your account has a single transaction that is more than $20,000.
• Set up a separate account where you deposit all your funds (aka an income account). After you deposit the funds into the income account you can move them to separate accounts (operating or savings). You probably realize when you have funds electronically deposited, you have to give your routing and account numbers. But did you realize that when you deposit a check into your account some banks print your routing and account number on the back of the check? If the person who wrote you the check gets electronic copies or images of checks they’ve written, they also get your routing and account numbers. 
• Another technique is to have a savings account and move excess funds to the savings account. You only move money in and out of the savings account through the bank’s website, and never write checks from the savings account. This ensures that when fraud hits your operating account, the majority of your cash is safe. Some banks allow you to add a savings account as overdraft protection to the operating account. Do not do this, as it completely defeats the purpose of moving excess funds out of the operating account.

There are 3 main types of bank fraud: check, ACH (Automated Clearing House), and wire fraud. There are common solutions to protect you from each type of fraud. Most of the fraud protection measures have fees as well as a small amount of accounting complexities. However, these protection measures reduce your susceptibility to fraud.

Check fraud is fraud that happens when someone alters a check or creates a fraudulent check with your information. The solutions that are available to protect against this fraud are positive pay and reverse positive pay. With positive pay, you tell the bank what checks you have written, and any check that is not on that list is flagged for your review. Normally this information is uploaded to the bank once a day, but I have seen clients upload this information multiple times a day. If uploading files does not seem feasible for you then reverse positive pay may be an alternative. With reverse positive pay you are sent an email every day showing the checks that are trying to clear your account, and you can either accept or reject every check.

ACH fraud when someone pulls money out of your account without your authorization. Two solutions that are available to protect your accounts are ACH block and ACH positive pay. ACH block is exactly as it sounds – it blocks all ACH transactions from leaving your account. ACH positive pay is just like regular positive pay except instead of submitting checks you have written, you submit ACH transactions that you have originated.

Wire fraud is when someone wires funds out of your account. Wire fraud can be when the fraudster gets your user name and password and then sends unauthorized wires, but it can also be a scheme that gets you to authorize a fraudulent reverse wire. Most entrepreneurs don’t realize that there is such a thing as reverse wire. While this is possible, most banks require authorization from the account owner before the funds are sent back. Most often, reverse wires are done when a wire is issued by mistake.

If you do send ACHs or wires from your account, I recommend you implement dual control. Dual control is when one person originates or prepares an ACH or wire and then a separate person with a separate login approves the ACH or wire. This is an effective protection against both internal and external fraud.

I have yet to meet an entrepreneur that is excited about dealing with fraud, so take some time to be sure you are as protected as you possibly can be.

Being an entrepreneur is one of the most difficult and demanding things you can do. The good news is that entrepreneurship today is a team sport. Let’s connect on LinkedIn and together we will start taking control of your business finances which will lead to peace, fulfillment and achievement of your strategic goals. When we connect, tell me the craziest fraud story that you have heard.

Greg Martin is an entrepreneur’s insider to the banking industry and passionately believes that every person was uniquely designed for a higher purpose and calling. Greg guides entrepreneurs in defining and achieving their purpose and calling. His deepest passion is living life with his wife of 17 years and their wonderful son.