Bank A (RDFI) requests authorization of transaction from Bank B (ODFI) and a late return due to a fraud situation. It has been about 120 days since the transaction in question took place and funds are long gone. Bank B needs to provide the transaction authorization, but are they required to return funds to the RDFI so long after the transaction took place?

If you are outside of your 60 day window - the transaction is done as far as ACH returns are concerned, is it not?

Bank B could send back the funds if they were able to recoup from their customer even after 60 days, if Bank A provided a hold harmless agreement, but they aren't under any obligation to do so.

That said, however, under Nacha rules, Bank B warrantied that the transaction was properly authorized by the Originator and the Receiver. The warranty is given to each RDFI and ACH Operator. That warranty is valid for a period provided by the statute of limitations on contracts in the state of Bank B's domicile. If Bank A believes there was no authorization or that the authorization was not valid, the RDFI can attempt to recover from the ODFI on a claim for breach of contract during that period.