Check fraud appears to be decreasing but payment fraud overall all is on the rise, in a big way, as fraudsters push other methods bolstered by business email compromise (BEC), or fraudulent emails seeking to persuade financial executives to send payments to the criminals.
The Association of Financial Professionals’ recently released 2016 AFP Payments and Control Survey revealed that 73% of respondents experienced payment fraud in 2015—matching 2009 as the largest percentage ever recorded—up significantly from 62% last year and 60% in 2013. An organization’s size did not appear to impact the incidence of fraud last year. However, companies with fewer payment accounts were more likely to be subject to payment fraud attempts, with 78% of organizations with annual revenue of at least $1 billion and fewer than 28 payment accounts getting hit but 64% of similarly sized companies with more than 100 accounts.
Checks continue to be the main method of payment for US companies—unlike most other countries that have gone electronic—and unsurprisingly the method most often targeted by fraudsters. However, 71% of companies experienced attempted or actual payment fraud in 2015 compared to 77% the year before. The survey notes that much of that decrease likely stems from companies slowly moving away from checks to electronic payment methods.
Wire transfers were the second most popular target for fraudsters in 2015, with 48% of financial professionals hit, a giant leap over the 27% in 2014, which itself was a significant increase from 14% two years ago.
“Now wire fraud is really second in line after check fraud, so that’s where we see the big increase,” said Magnus Carlsson, manager for treasury and payments at the AFP, in a prepared video.
Mr. Carlsson drew a connection between BEC and wire fraud, noting that 64% of respondents experienced attempted or actual BEC in 2015, and that it was somewhat more prevalent among companies with revenues over $1 billion (69%) than under (60%). Of those companies that did experience payment fraud via BEC, 56% did so through wire transfers. Other payment methods impacted by BEC, according to the survey, were checks (29%), corporate/commercial credit cards (18%), ACH debit (16%) and ACH credits (15%).
Although a large portion of respondents were targets of BEC, less than half incurred any financial loss as a result. In fact, the survey found, companies experienced relatively small financial losses in 2015 as a result of payment fraud attacks. No losses were experienced by 17%, losses of less than $25,000 by 25%, between $25,000 and $249,000 for 29%, and more than $250,000 for 27%. The largest losses were experienced by large organizations with more than 100 payment accounts, with 39% of financial executives from those companies reporting losses greater than $250,000.
The survey found that most payment fraud, 65%, continues to originate from outside individuals, with 50% reporting BEC as a source of attempted or actual payment fraud, 15% organized crime rings, 12% a third-party or outsourcer, 11% and account takeover, and only 5% an internal party.
In terms of preventing check fraud, the biggest source of payment fraud, the survey report recommends companies exposed to such fraud often should consider performing daily reconciliations and/or investing in positive pay, which continues to be the method most often used by organizations (88%). Daily reconciliations and other internal processes were cited by 77% of companies, segregation of accounts by 69%, and payee positive pay by 56%.
The survey notes that 20% of companies exposed to at least one check fraud attempt in 2015 incurred a financial loss as a result, up from 15% the year before, and the percentage jumped to 35% for larger companies with more than 100 payment accounts.
Following check and wire fraud as the next most popular form of payment fraud was fraud through corporate and commercial credit and debit cards, with 39% of respondents reporting their companies as targets; then came ACH debits (25%) and ACH credits (11%).