Fraudsters Beef up Attacks on Checks As the ‘Weakest Link’

Check volumes may be declining, but check-related crime remains by far the most common type of payment fraud reported by corporate financial officers. What's more, while overall losses still remain small, fraud attempts increased last year and the recession could be a cause, according to the Association for Financial Professionals. The Bethesda, Md.-based AFP's newly released 2009 fraud study is derived from data provided in January by 629 corporate treasury and financial professionals. Seventy-one percent of responding companies and organizations reported being victims of attempted or actual payments fraud last year. Ninety-one percent of respondents in that group said the fraud involved checks. “Thieves continue to target the weakest link, which is paper checks,” Nasreen Quibria, the AFP's director of payments, tells Digital Transactions News. Some 63% of the organizations reporting attempted or actual payments fraud sustained no financial losses, and another 23% suffered losses of less than $25,000 in 2008. But after trending downward since 2004, the median value of losses sustained by AFP member organizations from all payments fraud rose 9% in 2008 to $15,200 from $13,900 in 2007. Sixty percent of the organizations that sustained losses identified checks as the payment method most responsible for them, followed by consumer credit or debit cards, 20%; commercial cards, 10%; automated clearing house debits, 5%; ACH credits, 3%; and wire transfers, 1%. Some 47% of the organizations reporting at least one incident of attempted check fraud suffered a financial loss, a big jump from the 17% that sustained financial losses from check fraud in 2007. “Part of that is from lack of fraud-control measures,” says Quibria. Many companies, according to the AFP, fail to use techniques such as positive pay or a related process called reverse positive pay. Positive pay involves daily reconcilement of a company's checks with checks presented for payment to the issuer's bank in order to flag fraudulent checks. According to the study, the most widely used techniques to commit check fraud were counterfeit checks using the organization's magnetic ink character recognition (MICR) line data, with 72% of victims reporting fraud from that method; altered payee names on organization-issued checks, 59%; and altered employee paychecks, 27%. Meanwhile, 17% of organizations that were victims of ACH fraud in 2008 sustained an actual financial loss. “Organizations that suffered a financial loss as a result of ACH fraud generally did so because they did not follow best practices and/or neglected to execute their own business rules as expeditiously as they should have,” the report says. More than half of the victims did not use so-called debit blocks or filters to thwart fraud, the report notes. Fraud might be heading upward if trends identified in 2008 are any guide. Thirty percent of the AFP's respondents reported that incidents of fraud increased last year compared to 2007. “Further, 38% of organizations experienced increased fraud activity during the second half of 2008 as economic conditions worsened in the U.S.,” the study report says. JPMorgan Chase & Co.'s J.P. Morgan Treasury Services sponsored the AFP survey. In other fraud news, the Federal Bureau of Investigation and the National White Collar Crime Center this week released their annual report about Internet fraud. The report says complaints of online crime reached a record high of 275,284 in 2008, up 33% from 206,884 in 2007. Estimated losses from those crimes were $265 million, up nearly 11% from $239.1 million in 2007. Non-delivered merchandise or payment accounted for 33% of referred complaints. Internet auction fraud accounted for almost 26% of referred complaints, and credit and debit card fraud accounted for 9%.