Fraud Prevalence Levels off, But Incident Rate Increases

Companies that accept checks and electronic payments were victimized by fraud at virtually the same rate in 2007 as in 2006, but those that experienced fraud saw more incidents of it, according to a survey by the Association for Financial Professionals released this week. The Bethesda, Md.-based AFP is a trade group made up of treasury professionals from retailing, manufacturing, and other sectors. While the AFP reports 71% of respondent organizations reported actual or attempted fraud last year, virtually unchanged from 72% in 2006, some 30% of those companies said the number of incidents increased; 18% reported fewer incidents, while 52% said the number was unchanged. Much of this fraud resulted from paper check payments, with fully 94% of victimized organizations reporting this type of fraud. Of those companies that receive electronic payments from consumers in the form of cards or through the automated clearing house, just 10% said they were hit last year by actual or attempted fraud. And incidents of consumer-based fraud appear to be moderating. Among these companies, 61% said they had experienced the same number of incidents as in 2006. Thirty-seven percent reported more incidents, and 2% said there had been fewer. Altogether, 43% of the respondents reported accepting consumer-based ACH and card payments. Among companies reporting consumer-based fraud, credit cards were responsible for most of the incidents, with 89% of organizations reporting this type of fraud, followed by ACH (38%), and signature debit cards (24%). Interestingly, 11% reported attempted or actual fraud on PIN debit cards, often seen as safer than either signature debit cards or credit cards because of their PIN authentication. But consumer fraud often results in actual losses for these businesses, largely because of online commerce. The AFP report says two-thirds of organizations reporting consumer ACH or card fraud sustained losses, compared to 37% for all companies reporting fraudulent incidents of all types. Again, credit cards were responsible for most of the consumer-fraud losses, with 92% of those reporting such losses citing this as the source. ACH fraud caused losses for 36% of these companies, followed by signature debit cards (28%) and PIN debit cards (20%). Some 71% of those suffering losses said the loss come from Web sales, followed by card-present sales (63%) and phone-based transactions (46%). Taking into account all payment instruments, including checks, and business-to-business payments as well as consumer transactions, some 63% of organizations reporting actual or attempted fraud suffered no losses at all. Among those that did, the median loss came to $13,900, a number the AFP report characterizes as “relatively small.” Though check fraud seems pandemic, with nearly all companies reporting fraud citing checks as a source, only 17% of these organizations sustained losses. The AFP survey is the fourth annual poll the organization has conducted and was underwritten by the Electronic Payments Network, a unit of The Clearing House Payments Co. LLC, New York. It was fielded in January and went to 3,950 members, with 488 responses. Surveys sent to non-member companies yielded another 64 responses. Manufacturers and retailers made up nearly one-third of respondents.