Capstone Proposal
Introduction
Within contemporary society, scamming incidences have often been on the increase, especially with the introduction of more technology innovations such as the Internet of Things (IoT), which has enabled easy access to information. However, due to a lack of sufficient technical capacity, most people have often fallen victims to the scandals, mainly because, as of 2020, up to 75% of organizations worldwide had experienced phishing at one point in their operations (Rosenthal, 2021). The scam is mainly described as trickery, typically used to cheat someone to something or into doing some things, such as giving money. This provision means that scamming typically adopts various forms as long as fraudulent processes were involved in obtaining money from another person.
One of the more common types of fraud in today’s business climate is ACH fraud. You will be hard-pressed to find a small business today that doesn’t use ACH as a form of receiving and delivering payments. According to NACHA, the volumes of ACH have continued to grow among the enterprises last year, and over the next couple of years, the number will increase consistently. The latest statistics on ACH activities on the same day reveal that almost two million transactions take place daily, giving criminals more access to fraud. Due to this prevalence, the reason for ACH fraud among criminals is easy to understand. Under certain circumstances, a merchant may reverse the ACH charge. Strict ACH reverse rules apply in the National Automated Clearing House Associate (NACHA). The transaction must be changed within five business days, and only three cases are authorized if the dollar is paid in the wrong way.
ACH scams refer to the Automated Clearing House fraud (ACH), which has recently increased rapidly based on statistics. The prevalence of ACH credit attacks increased from 13% in 2017 to 20% in 2018 (AFP, 2019). It is worth noting that the transactions are customarily conducted electronically between bank accounts using a batch processing system hence providing attackers with ample time to look for loopholes to access the design and execute the unauthorized transfer of funds electronically. One of the main loopholes involves the ease of accessibility of the system and the weak authentication systems used to authorize payments. Only a few files are required to confirm charges.
The two famous attempts at ACH fraud are the misrepresentation of a company and the fraudulent usage of bank accounts. When you know what happened, often the perpetrators are gone, leaving a financial mess. They collect customer details for routine payment guidance. Customer signature, branch or sort code and account number are usually used. This knowledge can be easily obtained via a search transaction. They can check volumes continue to decline worldwide but continue to serve the perpetrator as a source of helpful information. Using emails supposedly from legitimate businesses to phish or spoil phishing, fraudsters are “tricking” the recipient into supplying login credentials to their bank. In doing so, offenders collect the information they need to access the client’s account. Malware is also used as a trojan or worm to penetrate a remote device or business, and is unknown to the end-user, and can remain sleeping until a financial transaction or access to financial details begins. So, the malware may take on a session at a given point and start a fraudulent operation, in contrast to the fooled user who provides login credentials. Otherwise, offenders may use an informant to provide sufficient information to cause criminals to be held accountable. The criminals connect to their customer’s bank accounts (manually or through malware) with online credentials in hand and identify their account(s). The fraudster may alter the email address of the account holder, telephone number and password to avoid identification or blocking of pending ACH transactions. Criminals initiate ACH transactions with the account under their jurisdiction. Depending on the experience and financial requirement of the fraudster, fraudulent transaction sums need to be avoided to enable the fraud identification laws of the Bank.
In recent years, ACH scams have become the most profitable and common ways of scamming employees worldwide. This provision is mainly because of the increased instances of electronic fraud as attackers now move towards ACH transactions as much as they are considered safer than traditional checks and wires that were commonly used before the technology innovation that made electronic banking easier (Ryan, 2019).
In recent years, most celebrities have often fallen victim to ACH scams. An example of this was Dana Giacchetto, who manages some of the biggest stars in Hollywood like Leonardo DiCaprio and Cameron Diaz was in 1999 accused of defrauding his clients of approximately $50 million through credit card frauds whereby he used their cards to pay for various expenses which can be considered a scam mainly because he used the trust created between the parties to access, and subsequently, defraud his clients of their money. This paper analyzes the various dimensions of the ACH fraud. I study in this Capstone how the commercial sector can prevent being victimized by the ACH fraud.
Literature Review
This literature review will cover the main aspects of ACH frauds. The literature will cover three main research questions. The first question is what ACH payments are, covering the details of ACH payments. The second main question will deal with the ACH frauds and their occurrence. The third question is how ACH frauds can be controlled.
Given Volynkin’s (2018) study, the first research topic will be discussed in depth here. Based on the detailed investigation based on facts and numbers and thorough primary research, his study has highlighted several important terms related to the topic. To define the term, ACH or automatic clear house payments are made using the ACH Network, a network of electronic payments in the United States. Consumers now demand these payments as a result of technological advancements. While these payment methods are safe, fraud can also occur in a variety of ways. However, these types of scams are thought to be very rare. Banks, credit unions, and other banking institutions handle these transactions. The National Automated Clearing House Association is in charge of clearing and managing all financial institutions. These payments are very similar to wire transfers, and the main difference is that there are no intermediaries involved in these kinds of expenses.
In addition to the specifics of the first issue, Maulidi and Jake (2020) conceptualized fraud in Indonesia by interviewing managers in local agencies. ACH provider is active in ACH payment networks, according to the findings. This payment method is only available via a NACHA-approved financial institution. The Bank or the financial institution which is involved is the one that acts as the leading ACH operator. The operators need approval over the yards to become authentic for payment transfers.
Shonhadji & Maulidi (2021) highlights whistleblowing and its importance to prevent fraud. The study mentioned that processing of the payments begins with an entry request. The person who makes or generates the request is known as the originator. The originator has a bank account in the respective Bank where the ACH origination generates. The bank account number of then plugged in along with the transit number, router number, client name, and bank name. My second question relates to ACH frauds.
The webpage reference of ACH fraud: Why criminals love this con, (2012) has mentioned that a period of one to four days is required so that the ACH network can make sure that the payment request is not based on any fraud-based information. In the case of any fraud-based information, it is seen that the Bank of Receiver issues a return code to the originator in case if no issue is found, the payment is processed successfully.
Kahn (2019) elaborates on the different advantages that consumers enjoy. These payment transfers are cheaper as compared to credit card-based transfers. These payments are also more secure as they are automated. The systems automatically check the information that has been provided. Nevertheless, there are various kinds of frauds that cab occurs in these systems, but these are only 1% of the payments made through these transfers. According to one of the studies from the Federal Reserves, these payments-based frauds are very rare. These payments have lowered fraud-based rates. These rates represent 0.08 basis points between the years 2012 and 2015.
With this, the third research question relates to finding a block to these frauds. This literature will identify the gaps between reports of Federal Departments and the FBI relating to these frauds. A description by Gerdes, Claire, Liu (2018) has talked about payment fraud totals estimated. The Federal Reserves highlighted that in the year 2012, two-thirds of the value of frauds were accounted for compared to only three quarters reported in 2015. But, according to the reports of the FBI, more than US$ 100 million have been reported in losses. The FBI receives a large number of new complaints every day. An increased level of ease is associated with conducting these kinds of frauds. Yet, the reports of NACHA claim that rates of these kinds of scams are significantly less while the reality is a contrast. That calls for a need to reassess the actual rates of frauds happening and affecting clients daily
Maulidi & Ansell (2020) provide details that these frauds are based on time delays in making the payments. Any unauthorized ACH transactions are termed ACH fraud. These frauds target a specific bank account. The frauds require bank account numbers and routing numbers, which is the hardest part of the fraud. The ACH network mitigated this fraud. The hackers can get bank account information when they get hold of customer credentials. With these credentials, the hackers can generate requests for the transaction, and the funds can be withdrawn with the help of ACH debit. The second primary way is the check fraud shame which is also referred to as check-kiting scam where the criminal gets the advantage of lag time. The criminal juggles money back and forth between accounts so that registration with ACH comes out as valid. But until the ACH makes a check, payment has already been processed. The third way is termed a spear phishing scam. Email is sent to an individual with a link that, when clicked, opens a link to a website that is malware. A key logger is a piece of software installed by the website as soon as it is accessed and records all keystrokes.
Denkins (2019) has mentioned that business cycles are all about profit margins, sales of the products, conversion of materials into goods, and generating revenues. Businesses’ operating periods are handled with the help of financial institutions to improve cash flow. Banks may use cash management services to deal with cash flow issues. However, to deter theft, companies must have proper protocols in place.
Because of the prevention steps taken by the Fintech sector, the ACH network, and the banking industry, fraud can be avoided. Encryption, multifactor authentication, and safe file transfers are some of the successful preventable steps. Financial institutions must follow the guidelines of the NACHA Operating Code to ensure that hacking attempts are stopped. After an ACH entry has been made, the uses need to wait for two days or 48 hours patiently. Customers of ACH transactions must be aware of the Know Your Customer Standards that have been established. These laws provide a series of rules that financial institutions must follow to verify and recognize risks involved with ACH payments and transactions.
Shonhadji & Maulidi (2021) mention that these regulations require that the bans collect detailed information of the client that can be helpful in verification procedures. Multifactor authentication is required for all clients. The clients need to make sure that all personal a sensitive information is shared over a secured network.
Silamoney (2020) has emphasized Automated Programming Interfaces (API). The research is focused on primary and secondary fraud investigations. For the transaction to be processed, APH needs ACH authentication. This is the latest system that protects the ACH system from being hacked. Financial services use ACH to process bill payments, bank-based withdrawals, and funds transactions between accounts. The critical gap identified in this literature is in the reports of the FBI and NACHA in terms of absolute numbers of words or cases of frauds. Real numbers needed to be reported. New ways need to be defined that can help in having control over these cases.
Methodology
In response to the research questions, I adopt a qualitative approach: How does ACH fraud affect the commercial sector? Primary sources, such as advertising posters and diaries, must be used to answer this query. In contrast, secondary sources, such as academic journals, will include evidence on the subject that is already accessible. I also plan to do secondary research on ACH fraud using newspapers and scholarly articles. I will analyze the project following the guidelines. I recommend answering the following sub-questions to answer my study question:
1. What is ACH fraud?
1. How can the commercial sector Prevent Hacking Risks on ACH Systems?
1. How can an unauthorized ACH be prevented?
My first sub-question is “What is ACH fraud?” To answer this question, I’ll look at some primary sources first. Interviews from documentaries will be used as primary sources. Secondary sources can assist in developing historical context and the study of the ACH risk’s evolution. These sources include Pishbahar, E., & Darparnian, S. (2018). Factors Creating Systematic Risk for Rainfed Wheat Production in Iran, Using Spatial Econometric Approach, Lygizos, M., Shenoi, S. V., Brooks, R. P., Bhushan, A., Brust, J. C., Zelterman, D., … & Friedland, G. H. (2013). Natural ventilation reduces high TB transmission risk in traditional homes in rural KwaZulu-Natal, South Africa. BMC infectious diseases, 13(1), 1-8., Memarzadeh, F., & Xu, W. (2012, March). Role of air changes per hour (ACH) in the possible transmission of airborne infections. In Building Simulation (Vol. 5, No. 1, pp. 15-28). Springer Berlin Heidelberg., Memarzadeh, F., & Xu, W. (2012, March). Role of air changes per hour (ACH) in the possible transmission of airborne infections. In Building Simulation (Vol. 5, No. 1, pp. 15-28). Springer Berlin Heidelberg. These sources explain that: With same-day ACH payment, sending bank-to-bank transfers is easy. However, as in all financial deals, there are risks involved. Furthermore, most ACH payment requests are made electronically, which could expose the ACH transaction to more aggressive attackers and fraud. Both electronic transfers carry some level of risk. And where a financial institution meets any of the NACHA rules, payments made via the ACH Network can be subject to ACH fraud. It can be challenging to protect against ACH theft. The General Risks were divided into five categories: credit risk, debit risk, operating risk, fraud risk, and systematic risk to help understand the risks involved with ACH fraud.
My second sub-question is “How can commercial sector Prevent Hacking Risks on ACH Systems?” To answer this question, I’ll look at some primary sources first. Interviews from documentaries will be used as primary sources. Secondary sources can assist in developing historical context and the study of the ACH risk’s evolution. These sources include Coburn, A., Leverett, E., & Woo, G. (2018). Solving cyber risk: protecting your company and society. John Wiley & Sons., Sullivan, R. J. (2014). Controlling security risk and fraud in payment systems. Federal Reserve Bank of Kansas City, Economic Review, 99(3), 47-78., Maggiore, U. L. R., Martinelli, F., Dondi, G., Bogani, G., Chiappa, V., Evangelista, M. T., … & Raspagliesi, F. (2019). Efficacy and fertility outcomes of levonorgestrel-releasing intrauterine system treatment for atypical complex hyperplasia or endometrial cancer: a retrospective study. Journal of gynecologic oncology, 30(4)., Rosner, M. T., & Kang, A. (2016). Understanding and regulating twenty-first-century payment systems: The ripple case study. Michigan Law Review, 114(4), 649-681. These sources explain that Currently, online payment processing is initiated and carried out by ACH. This poses an underlying and elevated vulnerability of ACH transactions by malicious attackers. At present, users of ACH are targeted by cyber threats, phishing of emails, accounting, impersonation of vendors, and many more. Find the following to defend ACH networks from hacking risks: Use the authorized NACHA service providers, who have been extensively tested and labelled as PCI DSS Entity. Do not hold the protection card number or track details electronically. Encrypt all credit and debit card contact details and cardholder data for electronic storage. Encrypt phone records containing details on personal accounts.
My third sub-question is “How can an unauthorized ACH be prevented?” To answer this question, I’ll look at some primary sources first. Interviews from documentaries will be used as primary sources. Secondary sources can assist in developing historical context and the study of the ACH risk’s evolution. These sources include Marley, R., & Mooney, J. L. (2015). Essential IT Controls for Preventing Cash Fraud. Journal of Corporate Accounting & Finance, 26(2), 49-57., Lindström, J., Neumann, A., Sheppard, K. E., Gilis-Januszewska, A., Greaves, C. J., Handke, U., … & Yilmaz, T. (2010). Take action to prevent diabetes–the IMAGE toolkit for the prevention of type 2 diabetes in Europe. Hormone and Metabolic research, 42(S 01), S37-S55., Lindström, J., Neumann, A., Sheppard, K. E., Gilis-Januszewska, A., Greaves, C. J., Handke, U., … & Yilmaz, T. (2010). Take action to prevent diabetes–the IMAGE toolkit for the prevention of type 2 diabetes in Europe. Hormone and Metabolic Research, 42(S 01), S37-S55., Sullivan, R. J. (2014). Controlling security risk and fraud in payment systems. Federal Reserve Bank of Kansas City, Economic Review, 99(3), 47-78., Montague, D. A. (2010). Essentials of online payment security and fraud prevention (Vol. 54). John Wiley & Sons. These sources explain that It is for the Bank to provide security safeguards against fraud on ACH networks to secure its accounts and customers.
Work Cited
AFP. “Results from the 2019 AFP Payments Fraud & Control Survey.” 2019 PAYMENTS FRAUD AND CONTROL SURVEY, 2019, www.afponline.org/docs/default-source/default-document-library/afpex-summer-f1-afp-research.pdf?sfvrsn=0#:~:text=Thirty%2Dthree%20percent%20of%20financial,to%2020%20percent%20in%202018.
CNBC. “Dana Giacchetto slapped with new fraud charges.” CNBC, Feb. 2014, www.cnbc.com/2014/02/20/former-money-manager-dana-giacchetto-faces-new-fraud-charges.html.
Rosenthal, M. “Must-know phishing statistics: Updated 2020.” Tessian, 2021, www.tessian.com/blog/phishing-statistics-2020/.
Ryan, V. “Scammers target ACH transactions.” CFO, 2019, www.cfo.com/applications/2019/04/scammers-target-ach-transactions/.
Proposed sources
Denkin, V. (2019). Understanding the Value of Mitigating Fraud Risk for Small Businesses with Cash Management. Understanding the Value of Mitigating Fraud Risk for Small Businesses with Cash Management. Mathematics and Computer Science Capstones. 43. Gerdes, G. R., Greene, C., & Liu, M. X. (2018). Changes in U.S. Payments Fraud from 2012 to 2016: Evidence from the Federal Reserve Payments Study. Reports and Studies 4265, Board of Governors of the Federal Reserve System (U.S.). Goodchild, J. (2012, 8 5). ACH fraud: Why criminals love this con. Retrieved from CSO: https://www.csoonline.com/article/2125833/malware-cybercrime-ach-fraud-why-criminals-love-this-con.html Kahn, M. W. (2019, 1 24). ACH Payments Have Lowest Fraud Rate, Fed Survey Finds. Retrieved from NACHA.Org: https://www.nacha.org/news/ach-payments-have-lowest-fraud-rate-fed-survey-finds Maulidi, A. (2020). Critiques and further directions for fraud studies: Reconstructing misconceptions about developing fraud theories. Journal of Financial Crime. Maulidi, A., & Ansell, J. (2020). The conception of organizational fraud: the need for rejuvenation of fraud theory. Journal of Financial Crime. Maulidi, A., & Jake, A. (2020). Tackling practical issues in fraud control: a practice-based study. Journal of Financial crime. Shonhadji, N., & Maulidi, A. (2021). The roles of whistleblowing system and fraud awareness as a financial statement fraud deterrent. International Journal of ethics and methods. Silamoney. (2020, 8 14). U.S. Know Your Customer (KYC) Regulations and ACH Payments. Retrieved from SilaMoney: https://silamoney.com/ach/u-s-know-your-customer-kyc-regulations-and-ach-payments/ Volynkin, A. (2018). ACH Account Takeover. Carnegie Mellon University. Đekić, M. D. (2017). How a modern business could respond to the phishing attack challenges. Tehnika, 72(3), 455-459. Retrieved from http://scindeks.ceon.rs/Article.aspx?artid=0040-21761703455D Pishbahar, E., & Darparnian, S. (2018). Factors Creating Systematic Risk for Rainfed Wheat Production in Iran, Using Spatial Econometric Approach. Retrieved from http://ir.jkuat.ac.ke/handle/123456789/3846 Rainone, E. (2021). Identifying deposits’ outflows in real-time. Bank of Italy Temi di Discussione (Working Paper) No, 1319. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3827493 Kitchin, R., & Dodge, M. (2019). The (in) security of smart cities: Vulnerabilities, risks, mitigation, and prevention. Journal of Urban Technology, 26(2), 47-65. Retrieved from https://www.tandfonline.com/doi/abs/10.1080/10630732.2017.1408002 Heinemann, L., & Lange, K. (2020). “Do it yourself”(DIY)—automated insulin delivery (AID) systems: current status from a german point of view. Journal of diabetes science and technology, 14(6), 1028-1034. Retrieved from https://journals.sagepub.com/doi/abs/10.1177/1932296819889641 Demler, T. L., & Krieger, K. (2020). Challenges associated with treating and preventing antipsychotic-induced constipation: considerations and cautions when prescribing novel interventions. International Clinical Psychopharmacology, 36(1), 12-17. Retrieved from https://www.ingentaconnect.com/content/wk/incps/2020/00000036/00000001/art00002
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