Incidents of U.S. corporate-payment fraud are declining as more companies shift to using electronic channels from paper, but criminals are getting craftier.
Fraudsters are making more attempts to hack into large organizations to gain control of payments to issue bogus checks and to initiate fraudulent automated clearinghouse and wire-transfer payments, new data the Association for Financial Professionals released March 20 suggest.
"Most of the fraud we are seeing recently is committed by criminals that are very entrepreneurial, constantly testing systems to find new entry points," David Bellinger, director of payments for the Bethesda, Md.-based organization, tells PaymentsSource.
The good news for corporations is they doing a better job of blocking most fraud, he says.
In the annual online survey of 5,242 financial professionals the association conducted in January, 66% of respondents reported their organizations experienced fraud attempts during the previous year, down from 71% who said so last year and from a peak of 73% who did in 2009. Large corporations saw higher rates of attempted fraud, Bellinger says.
Almost three-fourths, or 74%, of participating organizations that were victims of fraud attempts did not lose any money, up from 71% that didn’t a year earlier.
But the typical amount of loss organizations experienced from successful fraudulent incidents rose 4.3%, to $19,200 from $18,400 last year, the association says.
Checks remain the biggest source of corporate financial fraud and most lucrative of payment types for fraudsters, which is "remarkable given the precipitous decline in use of checks in recent years," the organization noted in its report.
The association found in a 2010 survey that the typical U.S. organization makes 57% of its business-to-business payments by check, down from 74% in 2007.
Some 85% of respondents said fraudsters targeted checks to commit fraud over the past year compared with 93% who said so last year.
Twenty-three percent of fraud attempts occurred last year with ACH debits, down from 25% a year earlier. Corporate or commercial cards accounted for 20% of fraud attempts, up from 15% a year earlier, and 12% of attempts involved consumer credit or debit cards, down from 23%, the association says. Wire-fraud accounted for 5% of fraud attempts, down from 4% last year.
The majority of respondents' organizations used corporate cards. Among those that experienced fraud in corporate card programs, purchasing cards accounted for 75% of incidents. Other types of cards involved in fraud incidents included travel & entertainment cards, 38%; virtual cards, 23%; fleet cards, 15%; and airline travel cards, 2%.
Outsiders committed most of the corporate-payment fraud. Eighty percent of organizations that reported fraud losses said a nonemployee perpetrated the fraud, 11% fingered an insider or an employee, and the association attributed remainder to crime rings or third-party contractors or outsiders.
While corporations continue to drive down their use of checks, many still struggle to find efficient methods to electronically consolidate payments with remittance data.
"Very few companies want to issue checks, but for many it is still easier to put a check plus the remittance information into an envelope than to send that same information electronically," Bellinger says.
While checks are the biggest source of fraud, the high number of fraud attempts suggests smaller companies are especially vulnerable to new types of fraud, he warns.
The association's fraud data "skews toward larger companies," Bellinger noted.
"We are seeing more fraud attempts, and the risk of loss is rising, especially for smaller companies that may not have protections larger companies have in place,” Bellinger says. “It takes a lot to attack a big company, so fraudsters are shifting their focus to smaller companies where they see greater opportunity, and they are looking at all payment channels."
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