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Don't be a victim of corporate fraud


From personal identity theft to corporate scams, fraud is one of the biggest money-making industries in the world, raking in an estimated $3.5 trillion annually. And for businesses that think it can’t happen to them, the numbers tell a different story.

In 2012, more than 60 percent of businesses experienced attempted or actual payments fraud with an average loss to the company of more than $20,000, according to the latest survey by the Association of Financial Professionals. The survey also found that 87 percent of those businesses attacked had their corporate checks targeted – the highest form of fraud – and 29 percent had their corporate credit cards targeted.

Internal Fraud: The Danger Within

Employee fraud can be the most harmful to a business and the most heartbreaking to an owner. The majority of business owners, particularly those running small businesses, have immense trust in their employees and fewer fraud controls than large organizations, putting them at the most financial risk.  

So, how do businesses protect themselves? The best protection for internal fraud is dual control and separation of duties. Understand who is in charge of what responsibilities on the financial side and make sure there are no gaps. Implement dual control over the businesses banking transactions, meaning the same person who is running payables should not be the same person who is reconciling accounts. Also, business owners should review financial statements on a weekly or monthly basis.

Companies also should implement Positive Pay, an automated fraud detection tool offered by most banks. Here is how it works: Companies cut checks every month and send the bank a list of all those checks, including check numbers, amounts and payees. As checks clear against the account, the bank makes sure the checks match up, eliminating any fraudulent or altered checks. Positive Pay is a great solution for companies as long as they already have dual controls in place.

Businesses also should set up an anonymous tip line as employee fraud is most likely to be detected by a tip from another employee.

Is it Safer Online? A Look at External Fraud, Emails and Online Payments


While check fraud was the most prevalent payment fraud in 2012, the incidence of fraud with corporate credit cards and electronic forms are on the rise. And while it is recommended that businesses move from a paper-heavy environment to an electronic world, there are still risks for which owners need to be prepared. 


The most common types of external fraud include the stealing of information through hacking into a company’s network, online banking fraud, online attacks via computer viruses or fake websites and fraudulent ACH payments.


To mitigate compromise in these areas, businesses should review the following tips and incorporate them into their everyday practices:

  • Educate and train employees on fraud prevention and detection
  • Be wary of unsolicited emails and attachments
  • Install, maintain and update spam filters, anti-virus software and firewalls
  • Utilize banking products such as ACH Filter or ACH Positive Pay
  • Require dual approval for all funds transfers (ACH, wires) from different computers
  • Dedicate one computer as the online banking computer
  • Review insurance policies to ensure fraud schemes are covered
  • Reduce check writing
  • Be the originator of ACH transactions
  • Separate accounts such as operating and payroll
  • Outsource payroll to a third party

The unfortunate truth is that fraud is a multi-trillion dollar industry and will continue to present financial problems for both individuals and businesses. However, the more business owners arm, educate and protect themselves and their employees, the less likely they are to become victims of corporate fraud.

Fraud by the Numbers

  • 61 percent of financial professionals indicate their organization experienced attempted or actual payments fraud in 2012
  • 27 percent of affected organizations saw the number of fraud incidents increase
  • 16 percent of those affected report that the incidence of fraud decreased
  • 87 percent of affected organizations had their checks targeted
  • 29 percent of those affected had corporate/commercial purchasing cards targeted, the next most common payments method targeted
  • The typical financial loss from payments fraud was $20,300
  • 26 percent of fraud is committed by an organization’s own employees

Source: Association for Financial Professionals “2013 Payments Fraud and Control Survey Results”

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Chris Ross

Chris Ross is senior vice president in Treasury Management for UMB Bank. To reach Chris directly, e-mail Chris.Ross@umb.com or call 303.839.2222.

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