B2B fraud survey shows checks vulnerable

A new survey conducted by the Association for Financial Professionals and underwritten by JPMorgan Chase & Co. found 66 percent of the businesses it surveyed were fraud victims during the past two years, but 75 percent of the businesses that were victimized by fraud attempts did not suffer losses. Checks represented the payment method most vulnerable to fraud, causing many companies to move to electronic payments.

The 2012 AFP Payments Fraud and Control Survey found business-to-business payment fraud is occurring with more frequency than when the survey first began in 2005 (reporting on 2004 activity), but the percentage of companies victimized by payment fraud was seven percentage points lower in 2011 than it was in 2009.

Survey highlights

The survey also found the larger the company, the more likely it is to be hit by fraud attempts. Eighty-one percent of companies surveyed that have revenues of more than $1 billion suffered incidents of fraud in 2011, compared to only 55 percent of companies with revenues under $1 billion. In addition, the larger companies suffered 22 percent higher average losses. Consumer oriented businesses such as retail and insurance sales were 15 to 20 percent more likely to be targeted for a fraud attack than other industries.

Here are other survey results pertaining to companies reporting fraud:

• 85 percent said their checks were targeted.
• 23 percent indicated they experienced automated clearing house (ACH) debit fraud.
• 20 percent reported they experienced credit/debit card fraud.
• 5 percent said they experienced ACH credits fraud.
• 5 percent indicated they experienced wire transfer fraud.

The survey discovered 74 percent of companies that were hit by actual or attempted payment fraud in 2011 had no financial loss as a result of the theft attempt. When companies did report a financial loss the average loss was $19,200.

Checks in question

AFP President and Chief Executive Officer Jim Kaitz said, "Checks 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, including attempting to hack into corporate accounts."

The authors of the AFP report said it is "perhaps somewhat surprising that the incidence of payments fraud against companies moderated during 2011 compared with that in previous years. Still, the level of fraud remained elevated as a variety of criminal threats continued to present challenges to lean treasury staffs fighting to secure their organizations against such activity."

Stephen Markwell, Executive Director at JPMorgan, said, "Recognizing the pervasive nature of payment fraud in the global landscape and the need for more detailed information, AFP has added important response data to the report. This year, in addition to an organization's revenue size, select payments fraud metrics are reported by number of payment accounts and whether the organization conducts the majority of its business domestically or internationally. Across time, we expect this growing body of information will help treasurers make appropriate decisions in protecting their organizations from attack."

For a copy of the full report go to: www.afponline.org/paymentsfraud .

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