ACH fraud refers to unauthorized electronic fund transfers made through the Automated Clearing House (ACH) network. It often targets banks, businesses, and consumers, exploiting weaknesses in authorization, verification, or monitoring processes. Because ACH payments underpin payroll, bill payments, and business-to-business settlements, even a single fraudulent transfer can cause financial and reputational harm.
The Consumer Financial Protection Bureau (CFPB) defines an unauthorized electronic fund transfer (EFT) as a transaction initiated by someone other than the account holder, without authority, from which the account holder receives no benefit. Fraudsters frequently exploit compromised credentials, social engineering, or weak internal controls to initiate unauthorized debits or credits.
How ACH Fraud Works
To understand how ACH fraud occurs, it’s important to know the structure of the ACH network. Transactions pass through originating and receiving depository financial institutions. When controls at either point fail, criminals can gain access.
Common vectors include:
Account takeover: Attackers obtain online banking credentials and initiate unauthorized ACH transfers.
Business email compromise (BEC): Attackers impersonate vendors or executives and trick staff into changing settlement details or approving fraudulent files. The FBI’s BEC guidance provides clear examples and prevention advice.
Payroll redirection: Fraudsters reroute salary payments to their own accounts.
Malware-based manipulation: Keyloggers or phishing campaigns capture banking credentials.
ACH Fraud Prevention Measures
Financial institutions mitigate risk through layered defense mechanisms that combine technology, process, and governance.
Effective measures include:
Multi-factor authentication to secure payment initiation portals.
Behavioral analytics powered by anomaly detection systems that flag unusual transfer patterns in real time.
Dual authorization for all large or high-risk ACH files.
Transaction screening and sanctions monitoring to prevent illicit transfers.
Timely reconciliation of accounts and ACH returns.
Institutions using transaction monitoring can detect anomalies and velocity spikes across ACH files, while payment screening applies filtering logic to block high-risk or sanctioned counterparties before processing.
Regulatory Requirements For ACH Fraud Management
The Consumer Financial Protection Bureau (CFPB)’s Electronic Fund Transfers FAQs outline clear liability limits and error resolution timelines under Regulation E. For corporate transactions, NACHA Operating Rules govern authorization, verification, and reversal processes.
Authoritative guidance from the FFIEC BSA/AML Manual highlights the need for layered authentication, originator due diligence, and ongoing monitoring of returns and anomalies.
The Role Of Technology In Reducing ACH Fraud
Modern compliance systems combine automation and AI to monitor ACH transactions continuously. By integrating real-time data, contextual risk scoring, and adaptive rules, compliance teams can detect fraudulent activity faster and reduce false positives.
Solutions like alert adjudication streamline alert handling by prioritizing genuine threats over noise. Combined with customer screening for identity verification and watchlist management for up-to-date list management, organizations can maintain complete oversight from initiation to settlement.
Internal Controls And Governance
Governance is essential to sustaining effective ACH fraud controls. Financial institutions should regularly audit permissions, segregate duties, and ensure all ACH originators undergo Know Your Business (KYB) and Customer Due Diligence checks. Maintaining comprehensive audit trails supports accountability and improves the quality of suspicious activity reports.
For firms that operate across multiple jurisdictions, consistent adherence to AML frameworks and automated screening processes helps maintain resilience and prevent exploitation of weak regional controls.
