Beware of ACH Fraud

Beware of ACH fraud

Your organizationcould lose thousands of dollars each year to Automated Clearing House (ACH) fraud, if you're not careful. This crime, which involves transfers from a third party to your nonprofit bank account, is on the rise in all sectors because of the expanded use of Internet banking.

How does it work? Your organization receives an ACH deposit of funds from a government agency. A week later, your nonprofit attempts to move a large sum from that account to another account. But the bank notifies you that there aren't enough funds to make the transfer. How can that be?

You investigate and learn there have been a large number of ACH withdrawals, all under $10,000, and no one from your organization has made them. The FBI gets involved and discovers that the money has been transferred to overseas accounts. Your nonprofit has become a victim of ACH fraud. And worst of all, your bank has no obligation to reimburse.

ACH debits are electronic withdrawals such as direct payroll deposits and debit payments of bills. They're a relatively simple way to move money, but there risk attached. For example, unlike with check and credit card transactions, your nonprofit may have no recourse to recover the loss and must notify the bank of the fraud within 24 hours.

But there a first line of defense: Maintain a separate bank account for ACH debits and credits. In addition, monitor and reconcile balances and transactions daily. ACH debit blocks and debit filters are banking tools that can help you monitor transactions. Cybersecurity insurance provides additional protection against loss.

Precautions beyond the conflict of interest document

Many nonprofits can answer yes to the Form 990 question about having a written conflict of interest policy ” the document is handed out once a year to board members and employees. But can they truly answer yes to the related question about regularly and consistently monitoring and enforcing that policy?

At a minimum, nonprofits should annually distribute a conflict of interest questionnaire to directors, officers and key employees. It also a good idea to remind board members at the start of every meeting that, should a conflict arise, they should bring it to the board attention. Last, implement procedures for dealing with conflicts, including a decision tree for handling different types of conflicts.