Who pays for payments fraud?

We all pay for fraud in some way, but who bears the direct cost? It can depend on the fraud and payment type, but some organizations think insurance will cover everything. This is typically not the case. Following are two examples of what insurance generally does not cover, one of which ties in with the executive card fraud I wrote about in June. Because it is such an important topic, AP Now is exploring the insurance angle within their payment fraud survey going on this month; learn more below. 

Internal Failure

Insurance carriers may back away from organizations who blatantly drop the ball in preventing a fraud. Last month, I shared the fraud case involving Bill Davis, ex-CEO of Community Action of Minneapolis. The board did nothing to prevent or detect the fraud; worse, some board members apparently benefited from it. As Star Tribune columnist Jon Tevlin wrote last week, insurance companies can and do refuse to cover board members when they are grossly negligent in their duties (according to Kate Barr, executive director of the Nonprofits Assistance Fund). Read the complete article to see how this fraud case is evolving

Does your organization have solid controls pertaining to card use by executives and the people responsible for monitoring them?

Business Email Compromise (BEC)

Organizations may or may not have insurance coverage for losses due to BEC scams. As a refresher, in a BEC scam, an email appearing to be from an internal executive is actually sent by a fraudster who requests that AP wire a certain sum of money to a specified account. Some insurance carriers are reclassifying BEC losses from E&O and/or fidelity bonds, which have low to modest deductibles, to cyber crime, which often requires organizations to purchase a separate, specific insurance policy with high deductibles. Has your organization checked into its insurance coverage lately?

Who is Liable?

If an insurance carrier is off the hook, we are left with the question, “Who bears the direct cost of fraud?” It could be your organization. Fortunately, card payments generally include some external protections that other payment methods do not. Ensure you are familiar with the related contract terms between your organization and its card issuer.  

From whose pockets does fraud extract money?

From whose pockets does fraud extract money?

Payments Fraud Survey

Fraud has evolved, taking on new forms, but the old fraud tactics remain as well. To determine what organizations have experienced, AP Now is currently conducting a survey, which addresses all payment types. Even if you have not been a fraud target, please take the survey to share the strategies that have helped protect your organization. Each participant will receive an executive summary of the results and an invitation to attend the related live webinar. 

About the Author

Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With more than 15 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more

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