ACH Fraud Compromises 150 Transactions for a Management Company: What to Learn from This Fraud Event

A seemingly harmless piece of paper — a check on a desk, unguarded mail or a statement on a printer — can be the key to a significant financial crime. Automated clearing house (ACH) fraud is becoming a bigger problem because it’s relatively easy for criminals to access sensitive information and for victims to unknowingly share account information.

With just a few stolen account details, fraudsters can make unauthorized purchases or initiate fraudulent payments, causing significant financial harm to legitimate account holders.

Although ACH fraud is easy to commit, it is also easy to prevent. Implementing security measures and educating employees about potential threats and how to spot them can significantly reduce vulnerability.

ACH Fraud: A Real-Life Story

For one community management company, the daily routine of overseeing finances for numerous homeowner associations (HOAs) took an unsettling turn. An unexpected and initially undetected pattern of ACH debits to association accounts began to emerge, with funds directed to unfamiliar vendors, including rent and car payments, as well as other merchants unrelated to HOA business.

There was a total of 150 ACH transactions across 10 HOAs — indicating a serious issue.

How It Happened

Somehow, criminals obtained the associations’ account information and used it to execute unauthorized electronic payments via the ACH network. In this situation, the exact method of accessing the account information remains unconfirmed.

In some cases, fraudsters have reportedly intercepted mail, copied the routing and bank account number information, and then returned the mailed checks to the postal system, leaving senders and recipients unaware that the checks had been touched. It’s that easy.

Taking Action

Because the fraud affected 10 HOAs and involved numerous payments, the recovery process was complex and time-consuming. The Western Alliance Bank relationship manager reviewed every transaction made in the past 30 days to determine whether it was valid or fraudulent activity.

Using the National Automated Clearing House Association (NACHA) system, the bank initiated reversals of suspicious transactions within the 48-hour window for business-to-business payments and the 60-day window for business-to-consumer payments. For transactions outside these timeframes, the bank directly contacted the receiving companies to request proof of debit authorization.

This proactive approach enabled the recovery of 70% of the stolen funds. However, the remaining 30% of the fraudulent transactions ultimately resulted in a financial loss for the community management company.

Preventing ACH Fraud

Preventing ACH fraud requires a multifaceted approach, combining technology tools with effective internal practices. This downloadable fraud prevention checklist offers some key steps to protect your management company or HOA:

• Use ACH Positive Pay: Implement ACH Positive Pay, which empowers companies to actively prevent unauthorized debits from their accounts by reviewing and accepting or declining ACH transactions on a daily basis
• Keep Account Information Private: Exercise extreme caution with account numbers by redacting or removing sensitive information when sharing documents.
• Do Not Leave Unattended: Secure physical checks and bank statements and avoid leaving them in open or easily accessible areas.
• Monitor Your Account Daily: Establish a routine of regular and prompt bank account reconciliation for early detection of suspicious activity.

Connect With a Trusted Banker

A proactive approach can help safeguard community associations from ACH fraud. Bank relationship managers can tailor a comprehensive prevention plan to the specific needs of any association or management company. The Alliance Association Banking group at Western Alliance Bank specializes in offering HOAs, community associations and management companies’ preventive strategies to minimize the risk of fraudulent activity.

Reach out to a member of our dedicated banking team for additional tools and solutions to help detect and mitigate risk, including free virtual training for you and your employees.