Having a healthy cash position is the lifeblood of an organisation, but the ever-growing risk of financial fraud and error is an increasing cause for concern for many.
UK Finance has cited that £1.2billion was lost to fraud in 2022 alone. These stats are startling; in many cases it can just take one fraudulent act to have catastrophic consequences for a business, meaning many organisations can’t afford for even one fraudulent payment or error to ‘slip through the cracks’. With the added uncertainty around the UK’s recovering economy, there is also growing pressure for businesses to add additional payment controls to comply with the UK government’s new corporate regime, UK SOx.
To address these challenges, finance leaders are tasked with implementing ways to reduce the impact of risk across their payments and cash management operations to protect and futureproof their finances, as well as comply with other evolving regulations.
Being able to successfully map risk across your payment process can feel like a mammoth task, however using a tool like AccessPay’s Payments Risk Matrix can help you identify areas of risk and concern. Finance leaders require a comprehensive overview of what needs to improve across their full finance process and a plan, mapping out the low to high priority risk items that need to be addressed.
In this blog, we will explore common examples of payment risks, how you can use our Payment Risk Matrix to identify and prioritise areas of risk in your own payment process.
Firstly, identify your payment risk factors
One of the primary reasons we find most organisations embark on bank connectivity projects is to support operational compliance and reduce the impact of risk in their payments operations.
Payment risk can manifest in several forms, and businesses need to have a profound grasp of what these threats are to safeguard their financial stability.
Below is an example of the risks, and the potential consequences if not addressed.
A major payment risk is the threat of financial fraud, in fact, ‘Employee Theft Statistics 2023’ found that 57% of financial fraud cases were committed by company insiders or a combination of both.
In a recent famous case, an employee stole over one and a half million pounds over a six-year period, demonstrating how if the correct payment controls are not in place, financial fraud can persist for an extended duration without being detected. In this case, an employee logged fictitious records within their company’s accounts, using their own bank details, resulting in money being funnelled directly into their account. This example underscores the importance of detecting and preventing fraudulent activities to avoid substantial financial losses.
Phishing scams & APP fraud
Phising Scams & APP (Authorised Push Payment) fraud are perhaps the most prevalent threat when it comes to external fraud. According to UK Finance, Authorised Push Payment Fraud (APP) has cost businesses nearly £500million in 2022. APP fraud tricks its victims into sending money to an account controlled by a fraudster under false pretences.
Phishing scams also pose a significant threat. These are normally emails that pose as a senior employee within a business, normally requesting a payment to be made on their behalf; aiming to trick employees into authorising and unauthorised payment. These scams are hard to spot and are often well crafted and realistic communication.
Even well-trained and experienced professionals can make mistakes, which can lead to significant financial discrepancies. For instance, adding an extra zero to a payment, turning £10,000 into £100,000, could have dire consequences, particularly for small businesses.
Operational Resilience and Regulatory Compliance
Regulatory authorities have become more stringent in holding business leaders accountable for operational errors. The new Corporate Governance Regime (UK SOx) puts emphasis on Finance Directors to personally vouch for financial data; making it imperative for organisations to not only understand the risks of fraud and error but also to address them effectively to meet regulatory standards.
Evaluating payment risk with AccessPay’s Payment’s Risk Matrix
To effectively assess and mitigate payment risks like the examples above, organisations can employ a Payments Risk Matrix.
This common method of evaluating risks uses a combination of likelihood and impact to map out the risks an organisation faces. Likelihood is evaluated on a scale, ranging from one (low probability) to five (high probability). Impact is assessed in terms of financial consequences, from zero to £99 (low impact) to over £1,000,000 (high impact).
Using a Payments Risk Matrix, organisations can identify the likelihood and impact of specific risks, such as human error or payment fraud.
By simply filling in a self-assessment questionnaire, businesses can gain insights into their current risk profile and take steps to reduce these risks through the implementation of controls, automation, and other security measures.
Want to map your own payment risks?
In a world where payments are increasingly digital, the threat of fraud and error associated with financial transactions can’t be brushed under the carpet.
Leveraging a Payments Risk Matrix is a crucial step in understanding, assessing, and mitigating these risks. By proactively addressing the potential for human error and payment fraud, organisations can safeguard their financial stability and maintain trust with their stakeholders.
The insights shared in this article underscore the importance of adopting a comprehensive approach to payment risk management, where fraud and error prevention is the key to financial security.