Two-thirds of Companies Hit by Fraud, Yet Few Incurred Financial Losses, Finds AFP Survey

Large companies and their corporate payments systems remain the prime targets for fraudsters, according to the 2012 Association for Financial Professionals (AFP) Payments Fraud and Control Survey. Now in its eighth year, the Payments Fraud and Control Survey, sponsored by JP Morgan, found that two-thirds of companies were hit by attempted or actual payments fraud during 2011, but few incurred financial loss because they took measures to mitigate exposures.

“Although attempted attacks still occurred in 2011, financial loss was avoided because companies have taken steps to eliminate vulnerabilities,” said Jim Kaitz, AFP’s president and chief executive officer (CEO). “The Payments Fraud and Control survey reveals that cheques remain highly vulnerable to fraudulent activity, which has spurred many companies to switch to less vulnerable electronic payments. Now fraudsters have shifted their focus to higher-value payoffs by hacking into corporate accounts.”

Fraudsters aim for convenient targets of opportunity, particularly big companies that handle many cheques. The 2012 survey revealed that larger organizations were targeted more frequently than smaller ones (81% versus 55%) and with a 22% higher average loss. Industries with greater consumer access such as retail and insurance have fraud attack rates 15% to 20% higher than other industries.

More than 80% of companies surveyed employ best practices such as positive pay and daily reconciliations to mitigate fraud. When they do experience losses, it is often because they failed to comply with their own fraud policies.

“With the proliferation of payment options, fraudsters are constantly exploring newer and bolder ways to perpetrate fraud, making it necessary for treasury professionals to remain ever vigilant against these emerging schemes,” said Stephen Markwell, executive director, JP Morgan Treasury Services. “Sophisticated new fraud protection technologies are making it possible to combat fraud more effectively and efficiently, reducing the potential for losses and protecting critical assets.”

The survey revealed a noteworthy vulnerability: pay-outs to cheque cashers (bank and non-bank) from holder in due course situations. Most organisations have aggressively pushed to achieve 100% electronic payroll to avoid this problem.

Additional key findings by payment type:

  • Cheques remain the payment type most vulnerable to fraud attacks with 62% incurring incidence of fraud and 26% of respondents indicating they have been hit by frequent cheque fraud attacks. Attacks typically spread out over the course of the year, but many (38%) cluster together.
  • Electronic cheque conversion services continue to experience a very low incidence of fraud (2%), making this service a good choice in helping minimise instances of check fraud.
  • Only 14% of organisations experience frequent attacks via automated clearing house (ACH). As the least likely target of fraud, ACH remains one of the most favoured payment mechanisms from a fraud control perspective.
  • The incidence of business card fraud continues to be relatively low, particularly on payroll and other benefit-related cards issued by companies to employees. Organisations need to maintain strict control over how, when and where their cards may be used.


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