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Payment fraud: How to stop your organization from becoming another statistic.

Man signing a check

Payment fraud is a major area of concern for all types of organizations, big and small. But there are important steps you can take to identify and minimize risk.

While big, splashy acts of fraud make the headlines, it’s the smaller, more pernicious acts that hit most organizations. While each may be for a relatively small amount, they add up, especially when going undetected for many years.

For example, a former Vice President of Finance at New York’s Iona College embezzled more than $800,000 over 10 years by issuing college checks to herself, making personal purchases on a college credit card, and creating false expense claims.

In another instance, a former administrative assistant at the University of Vermont deposited university checks totaling almost $46,000 into her personal account over a five-year period.

And the sad reality is that your organization will more likely face fraud in some way than not. According to a survey from JP Morgan, in 2022 65% of all organizations experienced attempted or actual payment fraud. Those figures go up to 84% when considering just organizations with an annual revenue of $1 billion or more, or with more than 100 payment accounts.

These check fraudsters are not typically master criminals – these are mostly crimes of opportunity. An executive assistant may find a check under a desk from a few months ago, realize no one has missed it, and endorse it to themselves. It’s so easy, they find ways of doing something similar on a regular basis.

Fraud is easier if your organization uses checks

In the US, 50% of all business-to-business (B2B) payments are still made with checks. That’s $12 trillion per year being sent through the mail, sitting around on desks, or even lost on the way to their recipient.

They’re not just expensive, requiring hours of manual administration, they’re also one of the least secure B2B payment methods. In 2021, checks were the payment method most impacted by fraud activity – in 66% of incidences of fraud, a check was involved, even though they’re only used in half of all payments. Fraud through modern payment methods like virtual cards is much lower by comparison.

Virtual cards and other electronic forms of payment have security features built-in, but a check is simply a piece of paper with banking and personal information on it. A check is handled by a range of people on its way to its intended recipient, leading to many opportunities for fraudsters to exploit.

That can be as simple as using correction fluid to change the amount, or someone cashing a check twice — once online and once in person.

Best practices to minimize payment fraud

Because there are so many ways your organization can be defrauded, it takes a multipronged approach to systematically reduce as much risk as possible. Here’s where to start.

Create strong internal controls

Strong protocols are designed to highlight inconsistencies and errors, letting you prevent fraud or spot it sooner.

You should establish processes for verifying vendor information, and reviewing and approving any documents related to accounts payable, including invoices, purchase orders, and payments. More checking while reconciling accounts can also add a layer of oversight.

Regularly update vendor information

When you know vendor information is up to date, it’s far easier to detect attempted fraud. Create a system for updating vendor information regularly, including checking them against high-risk lists, like the one maintained by the Office of Foreign Assets Control (OFAC).

Train your people

Once you know common red flags, it’s hard to miss them – training your employees to spot and act against fraud is your first line of defense.

This isn’t limited to payment fraud either, it’s also about physical and cybersecurity. Do your people know what a phishing email looks like? How would they react if they spotted a delivery person in an area they shouldn’t be?

Electronic payments – the anti-fraud first step

Many of these steps would be uneconomical or even impossible to implement without first moving to an electronic payment system, like Unimarket Payments. These let you easily make electronic payments, like ACH and virtual card payments.

These methods are faster, far more secure, and offer better oversight than manual payment options. Plus, because many of the steps in the processing of electronic payments are automated, they remove many opportunities for fraud.

For example, virtual cards can be quickly disabled if the details are compromised, they cannot be physically lost or stolen, and spending limits can be set. ACH payments are also considered more secure because they cannot be lost or intercepted in transit and all sensitive information is encrypted.

Gold standard security with Unimarket Payments

Implement Unimarket Payments in your procurement system and you’ll build in all the security benefits that come with electronic payments, automatically.

Unimarket Payments automates and simplifies the entire payment process, significantly reducing manual effort and virtually eliminating risk for your organization. It is also powered by Finexio which provides software that is trusted by some of the largest banks and financial institutions in the United States.

Learn more about Unimarket Payments and how it could help you minimize the risk of payment fraud.