Tactical Treasury: Fraud prevention is a never-ending task

By Steve Mullinger, Senior Vice President, U.S. Bank 

With Nacha rule changes coming in 2021, along with new treasury solutions that are advancing and adapting to a world with more ACH transactions, it's important to understand how to follow them and mitigate fraud.

Businesses, consumers and entire industries often react to unpredictable events by finding new ways of working, spending, and — especially for fraudsters — earning. At the same time, the recent and substantial increase in ACH payments volume indicates that a proactive approach to uncertainty,  optimizing treasury with paperless payments for example, might not only minimize business disruption, but significantly reduce the risk of fraud and the potentially high costs of returns and exceptions as well.

For most companies, however, preparation is a matter of internal decision-making and strategy. But all business is also subject to external economic factors. While regulation, market factors, and compliance requirements may at first appear more operational than strategic, the potential costs saved through risk mitigation and fraud protection imply that compliance, especially during rapid global change, now contributes more to business strategy than ever before.

Considering the increasing rate of change in both how business is done internally and how it is impacted by the external world, modern strategy will not only account for internal decisions, e.g., moving away from paper payments, but also recognize regulatory compliance as a contributor to strategic success. But what kind of evidence might support this unconventional conversation?

Nacha rules protect – and may optimize – treasury operations
  • Modernizing faster payments methods, including ACH, to protect against payments fraud is a continuous process.
  • A new rule requiring account validation for companies using WEB debits goes into effect March 19, 2021.
Fraud prevention is a never-ending activity
  • Trusted partnerships between treasurers, stakeholders and banks are built on meaningful communication that should advance business, not expose it further or raise risk profiles.
Digital treasury solutions help to further mitigate fraud risk
  • Optimizing treasury with digital solutions is a future-forward activity that may prepare an organization against the unrealized types of payments fraud experienced in the last year.

Account validation solutions should be scalable to business size and operations; while digital treasury platforms work well for almost any organization, companies with exceptionally high volumes of WEB Debits can experience added value in API-enabled account validation.

When it comes to reducing fraud, knowledge is power.

“Fraud is a concern of every single client of the bank, so there is a great opportunity for their banker to assist them in taking steps to avoid it” says Greg Rettinger, Vice President and ACH Product Manager in Global Payables at U.S. Bank.  “Sending funds to new or changed accounts without validating that it belongs to the intended recipient significantly increases fraud risk, especially when there are now more tools available to perform this validation.  In many cases, it will be considered not ‘commercially reasonable’ fraud prevention to forgo taking steps to do so.”

Rettinger pointed to increasing volumes on ACH as an effect of shifts in consumer spending methods, along with special economic factors (which Rettinger calls “pandemic spending”). But he adds that fraud reduction applies to both payables and receivables, meaning the benefits of account validation may not only reduce fraud, but also exceptions and returns, to name a few.

“Returns and exceptions are really expensive for a company,” he said. “So, in terms of Nacha requirements, the best companies actually want to do more rigorous validations to protect themselves, not just to comply with a rule … the consequences of getting hit for a rule violation are far less than being frauded.”

Contact Steve Mullinger at 513-632-2542.

U.S. Bank is a Goering Center Sponsor, and the Goering Center is sharing this content as part of its monthly newsletter, which features member and sponsor articles.

About the Goering Center for Family & Private Business
Established in 1989, the Goering Center serves more than 400 member companies, making it North America’s largest university-based educational non-profit center for family and private businesses. The Center’s mission is to nurture and educate family and private businesses to drive a vibrant economy. Affiliation with the Carl H. Lindner College of Business at the University of Cincinnati provides access to a vast resource of business programing and expertise. Goering Center members receive real-world insights that enlighten, strengthen and prolong family and private business success. For more information on the Center, participation and membership visit goering.uc.edu.