How to Cut Your Company’s Payment Fraud Risk

— September 16, 2019

As companies continue to invest in heavily amping up their security measures, fraudsters are shifting their aim — now targeting business’s less-secure alternative payment methods. A record-breaking 82% of organizations became victims of payment fraud in 2018, according to the Association for Financial Professionals.

The threats facing small and midsize businesses are more severe. The manual processes on which companies often rely can leave dangerous gaps in their accounts payable financial controls. And as cross-border transactions increase, small and midsize businesses become more susceptible to the currency risks associated with the volatile foreign exchange market.

When all payment processes are manual, the finance team can quickly become overwhelmed. Studies prove this leads to lower productivity and increased mistakes. In finance, those mistakes can create a serious heightened risk of fraud. In fact, manual processes and overburdened AP departments are often the greatest internal fraud risk for small, midsize, and new businesses.

The Growing Impact of Payment Fraud

Despite taking steps to strengthen their security, nearly half of small and midsize organizations in the U.S. dangerously underestimate the threat of payment fraud. According to one Vocalink Analytics report, about 50% of smaller companies believe that the impact would be minimal if they were ever hit by fraud.

This holds true even in the face of warnings from the FBI that business email compromise and email account compromise alone have accounted for nearly $ 12.5 billion in losses globally. Of the companies surveyed, most small and midsize businesses had never heard of business email compromise or many of the other fraud risks that commonly plague organizations of all kinds.

For example, any employee who has access to banking instructions, enters or approves checks, administers fraud protection services, or processes electronic payments could be a risk. Alternately, companies may be exposed because of inefficient workflows, manual reporting, and poor card management processes.

These types of risks are more abundant than some businesses realize. And of those that have been subject to fraud, more than 59% report the impact as “highly consequential or consequential.” Even with these can’t-miss warning signs, some companies don’t take risk seriously until they’re personally forced to make good on hundreds, thousands, or millions of dollars in fraudulent transactions.

How to Manage the Internal Risks of Fraud

Good news: Payment security is evolving to keep pace and has proven to help companies successfully manage fraud risks of all types. Take these three steps to effectively manage your potential internal risk factors:

1. Educate employees about the risks they pose

Internal fraud risks that involve employees aren’t always the result of malice. Misuse and even embezzlement may be a possibility, but most likely it’s simply a lack of education. It’s important to teach any employee who’s involved in payment processing how they directly or indirectly impact the company’s risk exposures.

Start by mapping out all people, processes, and technology involved at each point in the accounts payable process. Once the map is complete, characterize risk exposures for every person, process, and piece of technology. Then, devise strategies to mitigate current and emerging payments risks exposures. Finally, efficiently train employees on how to implement those strategies.

2. Minimize the number of hands in each pot

Having the entire payments process entirely mapped out will make it easier to see where those processes can be effectively streamlined. When fewer people are involved in each process, it’s easier for small and midsize businesses to boost visibility, separate duties, and implement role-based authorizations in the workflow.

For small businesses, it’s common to have only one person managing every aspect of the process. However, it’s never ideal to have a single authority over both accounts receivable and accounts payable. At the minimum, have separate employees or tools that are responsible for payments coming in and payments going out, with proper checks and balances between them.

3. Use tech to remove speed bumps in the workflow

Leveraging technology is quickly becoming the most effective solution to manage payments fraud risks. Most notably, it severely limits the need for manual data entry and workflow intervention. Plus, the right accounts payable solution can optimize end-to-end processing visibility by automating the entire payments workflow and strengthening compliance controls.

With accounts payable automation, small and midsize companies can effectively enforce strong financial controls, minimize headcount, and streamline the manual processes that oftentimes create the biggest internal risk exposures. They can also spot emerging risks faster and implement solutions to address those risks as soon as possible.

Small and medium-sized organizations underestimate their fraud risks because they don’t think they’re big enough to be an attractive target. However, fraudsters care more about a company’s vulnerabilities than its size. To protect themselves, companies of all kinds have to take fraud seriously and implement a few basic best practices.

Want to know more about how payment automation can protect your business against fraud? Request a free demo of my company’s payments automation solution to see it in action.

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Author: Manish Vrishaketu

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