The emergence of new payment types, the growth of electronic payments and the declining economy in 2008 have created new opportunities for payment fraud, according to a survey by the Association of Financial Professionals.
The 2009 AFP Payments and Fraud Control Survey, done by the finance professional association, reveals that more than 70 percent of organizations surveyed experienced attempted or actual fraud in 2008.
Large organizations were more likely to have experienced payment fraud than smaller ones. Eighty percent of organizations with annual revenues of more than $1 billion were victims of payment fraud in 2008 compared with 63 percent of organizations with annual revenues of less than $1 billion.
The AFP has examined payment fraud since 2005. The current survey, completed in January, captures the payment experiences of organizations during 2008.
Thirty percent of survey respondents reported that incidents of fraud increased in 2008 compared to 2007. Nearly 40 percent experienced increased fraud activity during the second half of 2008 as economic conditions worsened in the country.
“The fraud attacks on payment activities have occurred at a greater frequency than we’ve seen in the past,” said Nasreen Quibria, director of payments for AFP. “Now, the vulnerability of all payment methods – especially checks – demands a range of fraud-fighting tools and the vigilance of financial and treasury professionals responsible for protecting organizations’ assets.”
Nine out of 10 organizations (91 percent) that experienced attempted or actual payment fraud in 2008 were victims of check fraud. The percentage of organizations affected by payment fraud via other payment methods were ACH debit (28 percent), consumer credit/debit cards (18 percent), corporate/commercial cards (14 percent), ACH credits (7 percent) and wire transfers (6 percent).
According to Quibria, 63 percent of organizations that were victims of actual and/or attempted payment fraud in 2008 experienced no financial loss, and among those who did suffer a financial loss, the typical loss was $15,200.
The survey includes responses from 629 corporate treasury and finance professionals including assistant treasurers, controllers, cash managers, analysts and directors. It was sponsored by J.P. Morgan Treasury Services.
“We look forward to the data being used to foster important discussion around this issue and to seeing the financial community continue to develop anti-fraud tools,” said Iqbal M. Khan, executive director of J.P. Morgan Treasury Services.
Khan said organizations are turning to a number of defensive measures provided by their banks. According to the survey, these measures include:
- Positive pay/reverse positive pay (82 percent);
- ACH debit blocks (71 percent);
- ACH debit filters (55 percent);
- Payee positive pay (50 percent);
- "Post no checks” restriction on depository accounts (34 percent).
Many organizations surveyed also modified internal business processes to minimize potential payment fraud risks. The survey respondents considered the following processes important:
- Stopping the provision of payment instructions by phone or fax (86 percent);
- Increasing the use of electronic payments for business-to-consumer and business-to-business transactions (82 percent); and
- Reducing the number of bank accounts (82 percent).