Wire Transfer Controls: Four-Eyes Approval to Prevent Payment Fraud for Startups

How to Prevent Wire Transfer Fraud in Startups: A Layered Approach

For an early-stage startup, every dollar of runway is critical. Yet, as founders juggle product, sales, and hiring, a silent threat to that runway often goes unaddressed: Business Email Compromise (BEC). With founder-led finance and no dedicated CFO, the processes for moving money can have dangerous blind spots. A single compromised email account or a convincing fake invoice can drain a bank account before anyone notices. Business Email Compromise is not a distant corporate problem; according to the FBI, these attacks cost businesses over $2.7 billion in 2022. Implementing strong wire transfer controls isn’t about adding bureaucracy. It’s a fundamental part of protecting your capital and building a scalable company. This guide outlines a layered approach to secure your payments, focusing on practical steps you can implement today.

The Core Principle of Payment Security: Separation of Duties

Before implementing specific tools, it is essential to grasp the core principle of internal controls: Separation of Duties. In the context of payments, this means that no single person should have the ability to both create a new vendor, initiate a payment, and approve it. For a lean team of five, this might sound like overkill. However, concentrating this power in one individual, even a trusted founder, creates a single point of failure. Think of it like a nuclear launch key; the system is designed so no one person can act alone.

This vulnerability can be exploited by external attackers who gain access to that person’s account or, in rare cases, by internal bad actors. The reality for most pre-seed to Series B startups is more pragmatic: establishing simple, clear financial controls early on prevents chaos and significant financial risk as the company scales. It is not about a lack of trust in your team, but about building a resilient system that protects both the company’s assets and the individuals who manage them. The following layers build upon this foundational concept.

Layer 1: Secure Access Controls to Prevent Unauthorized Entry

The absolute, non-negotiable first step to securing your financial systems is robust access control. If an attacker cannot get into your bank account or payment software, they cannot initiate fraudulent transactions. This layer is about building a strong digital perimeter around your money.

Implementing Multi-Factor Authentication (MFA)

The centerpiece of access control is Multi-Factor Authentication (MFA). MFA requires a user to provide two or more verification factors to gain access, such as a password and a code from their phone. This is your digital deadbolt. Given that stolen credentials are a factor in 49% of all breaches, according to the 2023 Verizon Data Breach Investigations Report, relying on a password alone is no longer sufficient.

Implementing Multi-Factor Authentication (MFA) across all platforms that touch money is the baseline for modern security. This includes your business bank portal (like Chase, Mercury, or Starling), bill pay solutions (Bill.com), and accounting software (QuickBooks or Xero). When setting it up, always choose an authenticator app (like Google Authenticator or Authy) over SMS text messages. Attackers can use a technique called SIM-swapping to hijack your phone number and intercept text messages, rendering SMS-based MFA insecure. While setting up MFA across multiple platforms can feel tedious, it is the single most effective barrier against unauthorized account access.

Defining Roles with an Access Control Matrix

Beyond MFA, you should clearly define who has access to what. Use a simple access control matrix, which can be as straightforward as a spreadsheet, to document roles and permissions. This ensures employees only have the minimum level of access required to do their jobs. Typical roles include:

• Administrator: Can change settings and manage users. This should be limited to one or two founders.
• Approver: Can approve payments but not create them. Typically a founder or senior leader.
• Initiator: Can create payments and upload invoices but cannot approve them. An operations manager or finance assistant often holds this role.
• View-Only: Can see transactions and balances but cannot make any changes. This is useful for accountants or bookkeepers.

Regularly reviewing this matrix, perhaps quarterly and whenever an employee's role changes, prevents "permission creep" and ensures your controls remain effective.

Layer 2: Transaction Controls and the 'Four-Eyes' Principle

Once access is secure, the next layer focuses on the transactions themselves. This is where you actively implement Separation of Duties for wire transfers. The most effective method is a dual approval workflow, often called the 'four-eyes' principle. This means at least two people are required to sign off on a payment before it is sent. The workflow creates two distinct roles: the ‘Initiator’ and the ‘Approver’.

Defining Initiator and Approver Roles

The Initiator is typically a junior finance person, an operations manager, or a founder who sets up the payment details. They enter the vendor name, invoice details, amount, and bank information into the payment system. The Approver, usually another founder or senior leader, receives a notification to review and give final authorization. Critically, the Approver must log in to the system themselves to review the details directly. This prevents an attacker with access to one person's email from both creating and approving a fraudulent payment by simply forwarding a faked approval request.

Setting Practical Approval Thresholds

A common threshold for requiring dual approval on payments is $5,000. However, this figure should be tailored to your business. For transactions below this amount, a single approver might be sufficient to maintain operational speed. For high-value transactions, dual approval is mandatory.

Consider a biotech startup making a $25,000 payment to a contract research organization (CRO). The lab manager (Initiator) would upload the invoice and create the payment in the bank portal. The CEO (Approver) would then receive an alert, log in separately, and verify that the research milestone was met, the invoice matches the contract, and the amount is correct before providing final approval. This simple process breaks the payment chain, dramatically reducing the risk of unauthorized high-value transactions.

Layer 3: Detection and Verification for High-Value Transaction Security

What happens if a fraudulent request makes it into our system? Even with strong access and transaction controls, a sophisticated scammer can trick an employee into initiating a bad payment. This is where detection and verification create a final safety net. This layer is less about system permissions and more about team processes, particularly for vendor management.

A Robust Vendor Onboarding Process

First, establish a strict vendor onboarding and verification process. When adding a new vendor or changing an existing vendor's bank details, always verify the information through a secondary channel. Do not trust bank details sent via email. Instead, call a known contact at the vendor using a phone number you have on file, not one listed in the potentially fraudulent email or invoice. A scenario we repeatedly see is an attacker compromising a vendor's email, then sending legitimate-looking invoices to their customers with altered bank account numbers.

Bank wires are often final and difficult to recall. This is why verbal confirmation matters. Consider this case study: An e-commerce startup received an email from their largest supplier with an updated invoice and new banking details, citing a change in their financial institution. The operations manager initiated the $40,000 payment. However, because the company’s policy required verbal confirmation for any bank detail changes, they called the supplier’s main phone number from their website. The supplier confirmed they had not changed their bank, and the fraud was averted. The initial email was a classic BEC attack.

Real-Time Alerts and Audit Trails

In addition to manual verification, technology can help. Set up real-time alerts in your banking or spend management platform for events like a new vendor being added, a change in bank details for an existing vendor, or any transaction over a certain amount. These alerts provide immediate visibility into potentially risky activities. Finally, ensure your tools provide clear, unchangeable audit trails. An audit trail logs every action, showing who initiated, approved, and modified a payment. This log is invaluable for investigating any issues after the fact and demonstrating strong financial governance to auditors and investors.

Putting It All Together: Choosing Your Tech Stack

Your choice of technology will evolve as your company grows, but the principles remain the same. The key is to centralize control and visibility, creating a single source of truth for all payments. This avoids the risk of payments happening through multiple, unsecured channels.

Early Stage (Pre-Seed/Seed): Using Native Bank Features

For pre-seed and seed-stage startups, the most straightforward approach is using the built-in features of your business bank portal. Most modern banks in the US (like Mercury and Brex) and the UK (like Starling and Tide), as well as traditional banks (Chase, Bank of America), allow you to set up multiple users with different permission levels. You can designate one user as an Initiator and a founder as the Approver. The trade-off is friction versus cost; these tools are free but can be clunky, lack deep integration with accounting software like QuickBooks or Xero, and require manual processes for tracking and reconciliation.

Scaling Stage (Series A+): Dedicated Platforms

As you scale to Series A and beyond, transaction volume and complexity increase. This is where dedicated spend management (Ramp, Brex) and bill pay platforms (Bill.com, Melio) become essential. These tools are built specifically to solve this problem. They offer sophisticated, customizable approval workflows that can be based on amount, vendor, or department. They sync directly with QuickBooks (standard for US companies) or Xero (common in the UK), automating the creation of bills and reconciliation of payments. This drastically reduces manual work and creates a single, auditable system of record for all cash out.

For example, you can set a rule that all engineering software payments under $1,000 are automatically approved, while any new marketing contract over $10,000 requires approval from both the Head of Marketing and the CEO. This is where controls move from a manual process to an automated, scalable platform, freeing up founder time while increasing security. These platforms provide the access, transaction, and detection layers in one integrated solution.

Your Action Plan: 5 Steps to Secure Payments Now

Protecting your startup from payment fraud doesn't require an enterprise-sized budget or a dedicated finance team. It requires a commitment to a few foundational controls that scale with your business. By implementing a layered defense, you can significantly reduce your risk profile and safeguard your runway.

1. Enforce MFA Everywhere: Log in to your bank, payment platforms, and accounting software. Enforce MFA for all users, and mandate the use of authenticator apps instead of SMS.
2. Define and Document Roles: Clearly identify who can initiate payments and who can approve them using a simple access control matrix. It cannot be the same person.
3. Establish a Dual Approval Threshold: Start with a conservative figure like $5,000 for requiring two approvers. Use your bank’s native user permission features to enforce this rule.
4. Create a Verification Protocol: Mandate verbal confirmation with a known contact before paying a new vendor or changing an existing vendor's bank details. Do not trust financial information sent only via email.
5. Review Your Tech Stack: Evaluate if the manual friction of using native bank tools is creating risk. If transaction volume is growing, it may be time to invest in a dedicated spend management platform that integrates with QuickBooks or Xero.

Frequently Asked Questions

Q: What is the difference between an ACH transfer and a wire transfer?

A: Wire transfers are real-time, individual transactions processed by banks like FedWire. They are generally final and irreversible, making them a target for fraud. ACH (US) or BACS/Faster Payments (UK) are processed in batches through a clearinghouse, can take 1-3 days, and may offer a small window for reversal, making them slightly less risky.

Q: Can I get my money back after a fraudulent wire transfer?

A: It is extremely difficult. Because wires are settled in real-time, funds are often moved to another account immediately. Recovery requires swift action with your bank and law enforcement, but success rates are low. This is why prevention is the only effective strategy for high-value transaction security.

Q: Is a dual approval process necessary for a two-founder startup?

A: Yes. It establishes good governance from day one and protects against external threats. If an attacker compromises one founder's email, the second founder's approval is still required to move money. This simple check prevents a single point of failure and builds a scalable finance function.

Q: How often should we review our payment controls and access rights?

A: A quarterly review is a good practice for early-stage startups. You should also conduct a review anytime an employee joins, leaves, or changes roles. This ensures permissions stay aligned with responsibilities and that former employees have no lingering access to financial systems.