Payments Fraud a Top Concern for Financial Professionals

The report, released at the AFP Payments Forum in Orlando, Florida, found that checks continue to be the focus of criminal attacks as nearly all organizations (93 percent) that experienced payments fraud were victims of attempted check fraud. Other payment methods targeted for fraud include:

ACH debit fraud (35 percent of organizations that reported fraud)
• Consumer credit card fraud (17 percent)
• Corporate card fraud (14 percent)

Many organizations have adopted fraud control services offered by financial institutions, tightened internal controls and avoided financial loss. Forty-two percent of organizations that experienced at least one payments fraud attempt reported no losses from the attempt. But the survey finds that gaps in defenses have exposed others to financial liability.

• Eighty-six percent of survey respondents report that their organizations had adopted positive pay services prior to 2006 to protect against check fraud.
• Only 30 percent were using payee positive pay before 2006. That service examines the payee name on paid checks to confirm that it matches the payee name on the checks issued.
• Underscoring the importance of implementing payee positive pay, almost two-thirds of the victims of attempted or actual check fraud reported that the fraud involved altered payee names on the checks they issued.

In the case of ACH fraud, organizations that suffered financially failed to use defenses available from financial institutions or to follow best practices. The survey finds:

• Half of organizations that were financially responsible for ACH fraud losses in 2006 did not use ACH debit blocks or filters.
• Another 22 percent failed to reconcile their accounts or return fraudulent ACH debits on a timely basis.
• Smaller organizations -- those with annual revenues below $1 billion -- were nearly three times as likely as larger organizations to have suffered losses resulting from ACH fraud. They are also much less likely to use ACH debit blocks and filters.

In many cases, the fraud is perpetrated internally. Employees were responsible in about half of the cases involving fraud associated with the use of organizations' corporate cards (e.g., travel & entertainment, purchasing, fleet cards). Internal fraud appears to be an important factor in check and ACH fraud as well, and one of the reasons why organizations must assume liability for financial losses from the fraud.

"The increase in check fraud is occurring at the same time that check volume is declining," said Arlene S. Chapman, CTP, AFP's Senior Consultant, Technical Services. "Many organizations are successfully fighting fraud using tools that are widely available from financial institutions," Chapman continued. "They are also moving from checks to electronic payments for vendor payments, using payroll cards and direct deposit instead of paychecks and strengthening their internal controls."

The AFP 2007 Payments Fraud Survey was underwritten by the Electronics Payments Network (EPN).

To obtain the complete report, visit http://www.AFPonline.org/research.