Electronic payment methods help decrease payments fraud


By Ken Tysiac

Companies globally are using technology and carefully designed controls in an effort to curb payments fraud.

Use of electronic payment methods and a range of fraud mitigation strategies have coincided with a drop in payments fraud over the last year, according to a global survey of companies conducted by the Association for Financial Professionals (AFP).

There still is a lot of work to be done. Sixty-one per cent of the 625 financial professionals who responded to the survey said their organisation experienced business-to-business payments fraud or attempts at payments fraud in 2012.

But that’s 12 percentage points lower than in 2009, when reports of fraud and attempted fraud reached an all-time high during the nine years the survey has been conducted. Also, incidents of fraud decreased for the third straight year.

Eight-four per cent of organisations reported that their paper payments are decreasing and electronic payments are increasing. The move to electronic payment methods has the potential to improve payments fraud risk controls, according to a report about the survey results.

“Today’s corporate treasury professional takes proactive steps to combat fraud,” Jim Kaitz, AFP’s president and chief executive, said in a news release. “Many organisations are transitioning to more electronic payment methods. They are aware of potential vulnerabilities. They engage in dialogue with their key banks about fraud prevention.”

Although corporate use of checks has declined, checks remain by far the most common method reported, according to the survey. Eight-seven per cent of organisations that reported attempted or actual payments fraud cited checks as a fraud vehicle. Other common vehicles for fraud saw increased percentages from the previous year, though, and included:

  • Corporate/commercial cards (29%, up from 20% in 2011)
  • Automated clearing house (ACH) debits (27%, up from 23%)
  • Wire transfers (11%, up from 5%)
  • ACH credits (8%, up from 5%)

“Organisations must remain vigilant since fraudsters are constantly exploring newer and bolder ways to perpetrate fraud as payments options continue to evolve,” Nancy McDonnell, managing director of survey sponsor J.P. Morgan Treasury Services, said in a news release.

The effectiveness of fraud detection and controls methods was seen in the survey, as 73% of organisations that experienced at least one payments fraud attempt did not suffer actual losses from the attempt. The controls that companies use are varied and numerous.

To defend against attacks on security credentials, companies are performing daily reconcilliations (76%), reviewing and strengthening internal procedures (68%) and ensuring that disaster recovery plans include the ability to continue with strong controls (50%).

Organisations that experienced attempted ACH fraud in 2012 are reconcilling accounts daily to identify and return unauthorised ACH debits (77%), blocking all ACH debits except on a single account set up with an ACH debit filter or ACH positive pay (41%) and blocking ACH debits on all accounts (38%).

Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.

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