Payments Fraud at Companies Moderates, But Remains at High Levels, AFP Says

Payments fraud against companies moderated during 2011, with the share of companies experiencing payments fraud falling to the lowest level since 2004, according to the Association for Financial Professionals’ latest annual study of corporate payments fraud. Nevertheless, the level of fraud remained elevated, with the majority of organizations reporting attempted or actual payments fraud last year.

While fraud is occurring at greater frequency than reported in the initial AFP survey reflecting activity in 2004, the number of companies experiencing payments fraud was seven percentage points lower in 2011 than 2009: 66% versus 73%.

“It looks like we’re having a turn downward in levels of fraud activity,” says David Bellinger, the AFP’s director of payments. “I’m not ready to make an official call yet, but that was an interesting trend.”

Larger organizations, especially those with a large number of payment accounts, were more likely to have been targets than smaller ones, the AFP survey found. Eighty-one percent of organizations with annual revenues over $1 billion were victims of payments fraud in 2011 compared to 55% of organizations with annual revenues under $1 billion.

“The ones with a lot of (payments) accounts are the ones getting hit disproportionately to smaller organizations,” Bellinger says.

AFP doesn’t have any definitive proof of why larger companies are being favored by criminals. But “we think it’s because they are distributing more items and more checks so there’s more fodder for the criminals to attack,” Bellinger says. Also, crooks typically present counterfeit checks at a check casher or a bank, he says. “If it’s with a larger company name that’s recognized, they may not give it as much scrutiny and therefore (the crooks) might be more successful.”

Ninety-one percent of organizations with annual revenues over $1 billion and more than 100 payment accounts were subject to payment fraud last year compared to 76% of similarly sized organizations with 25 or fewer payment accounts.

Checks continued to be the most popular target for payments fraud. Eighty-five percent of organizations that experienced attempted or actual payments fraud in 2011 were victims of check fraud. However, that number is eight percentage points below the incidence of check fraud reported for 2010.

Automated clearing house debits were the second most targeted payment type for fraud at 23%, followed by corporate/commercial purchasing cards (20%), consumer credit/debit cards (12%), ACH credits (5%), wire transfers (5%), and payroll and other benefit cards (5%).

Despite the high level of fraudulent activity, most organizations subjected to at least one payments fraud attempt did not suffer actual losses from the attempt, largely due to effective fraud detection and controls, according to the survey. Seventy-four percent of organizations subject to payments fraud experienced no financial loss while another 16% experienced a financial loss of less than $25,000. Among organizations experiencing a loss, the typical loss for the year was $19,200. Large organizations sustained a median loss of $20,400, 22.1% more than the median loss of smaller organizations.