Tackling fraud should be a key part of every finance director's job. While some sectors such as retailers are obvious targets for criminals, every business is potentially at risk of falling victim to fraudsters.
Figures from PwC show that almost half of global organizations (49%) have experienced some form of economic crime, with around half of these originating within their business. And payments fraud is one of the most common threats.
Payment fraud covers any type of false or illegal transaction. This can be transactions committed using:
- Identity theft
- Card not present fraud
- Advanced fee fraud
- False chargebacks
- Check fraud
With so many potential avenues of attack, businesses face a tough job securing them all.
However, there are some simple steps you can take to reduce your exposure to payment fraud, whether these originate from external criminals or from within the company. Here are a few tactics every finance team should be aware of.
1. Monitor your payment processes
Procurement fraud is one of the oldest types of fraud in the book, yet companies still fall victim to it on a regular basis. In the UK, for example, 40% of companies are said to have experienced this in the last year, losing between $165,403 (€150,000) and over $441,076 (€400,000) a year. To mitigate this risk, it’s vital to closely monitor outgoing payments, with full auditing in place to detect any unusual activity as soon as it occurs.
2. Share your responsibility
A major risk area for fraud is where one individual within a company has the power to both initiate and approve transactions. This lack of oversight can allow them to commit fraud freely, and even if there are strong audit processes in place, the crime may not be discovered until it’s too late. Therefore, it's vital responsibilities are split among finance teams so no one can create and authorize their own payments.
3. Have clear approvals processes
Invoicing fraud, which involves companies being tricked into paying suppliers into the wrong bank account, is another common type of fraud, and takes advantage of the fact many companies have weak oversight in this area. Especially in large companies with many suppliers to pay, it can be easy for fraudulent invoices to be approved without question due to high workloads. To avoid this, it's important that employees remain vigilant and always follow clear best practice processes to verify and approve the details of every payment.
4. Use real-time transaction monitoring
For merchants, the biggest risks may come from identity fraud such as CNP fraud, and you can't always rely on banks and payment processors to spot this. Therefore, it's vital you're able to monitor and analyze transactions in real-time to look for key red flags. For instance, this may be orders from existing customers that don’t follow known patterns, information such as addresses or phone numbers that don’t match up, or even requests for expedited shipping for goods.
5. Have a clear process for preventing chargebacks
Chargeback fraud is another area that can quickly prove very costly for businesses. If firms are unwilling to challenge chargeback claims, this is something fraudsters are keen to take advantage of, with as many as 86% of chargebacks estimated to be fraudulent. Tackle this by putting clear processes in place for transactions, including keeping clear records of every transaction and training staff on what suspicious signs to look out for.