Payments Fraud Prevention: Protecting Your Organization from Check and Card Fraud

Linh T. Crider, CPA, CFE, Senior Manager

Are your organization’s payment processing systems vulnerable to fraud?  Recent research shows that check fraud continues to be a persistent problem for companies, and credit card fraud is on the rise.  According to the 2013 AFP Payments Fraud and Control Survey, 61% of the companies surveyed had experienced some type of payments fraud.  Without the proper controls in place, your business may be at risk to financial losses suffered from these types of scams.

The research showed that check fraud was the most common issue, with 87% of respondents reporting attempted or actual incidents.  However, only 16% of targeted businesses reported experiencing a financial loss from these breaches.  This is most likely due to the fact that many companies have stronger internal controls around their check processing systems and attempted fraud schemes are caught more quickly.

In addition to check fraud, more and more businesses are being confronted with scams that are committed using the organization credit card.  Companies that experience card fraud are more likely to incur a financial loss –26% of targets, a full 10% more than victims of check fraud.

Protecting Your Business from Payments Fraud
There are several controls you can implement to deter fraudsters from targeting your payment systems.   To prevent check fraud, a simple but often overlooked control is personally signing your checks.  If you cannot sign the checks, designate one (and only one) other person to do so – don’t use a signature stamp.  “Positive Pay” is also a common prevention mechanism – the bank only pays those checks that match the ones you have issued.

It is particularly revealing that those few companies who suffered financial losses due to check fraud noted that it was because they failed to reconcile accounts.  It may seem tedious, but regularly reviewing and reconciling financial accounts will help you prevent fraud.   When reviewing accounts, look for suspicious amounts, vendors and transactions, and unexplained adjustments.  This regular review will help you detect and investigate issues before your organization incurs large losses.

As we have outlined in a previous post, there are several controls you can put in place to prevent credit card fraud.  And again, one of the most important fraud prevention steps you can take in this area is regular review. Have the statements sent to someone without a card – such as your Controller or CFO – for review and reconciliation with expense reports and receipts before the card is paid.

The Good News
There is a bright spot in this research.  The study found that payments fraud decreased for the third straight year; reports of this type of fraud are at their lowest rate since 2004.  It is well-established that a rough economy can leave employees without the financial resources they’re accustomed to, providing the motivation to take advantage of weak controls.  Has the economy stabilized enough for corporate fraud levels to decline?  We can only hope this trend continues, but regardless, strong internal controls and corporate oversight is key to keeping your organization’s assets safe.

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