A Complete Guide to Prevent Payments Fraud

Fraud isn’t what it used to be, and the best ways to prevent payments fraud have changed. Once upon a time, it came in the form of sketchy invoices, shady faxes, and the occasional unsolicited check. Now? It’s AI-generated vendor profiles, perfectly spoofed executive emails, and phishing links dressed up in polished HTML.

Imagine a fraudster slipping past your most vigilant gatekeepers not by brute force but by sweet-talking their way in. That’s social engineering fraud—a crafty con where criminals manipulate people into divulging confidential information or performing actions that compromise security. 

Unlike hacking, which exploits software, social engineering targets the most unpredictable part of your defense system: humans. From posing as a trusted colleague to creating fake scenarios that trigger urgent responses, fraudsters exploit our innate trust and sense of urgency to gain unauthorized access to sensitive data.

And they love to use email to perpetrate these scams. 

This isn’t fearmongering. It’s your survival kit. A step-by-step blueprint to help you prevent payments fraud, recover fast if it happens, and future-proof your vendor risk management program.

Let’s dive in.

Can you imagine a business world without email? Email is necessary and helpful when there are documented, secure procedures for how employees use it. However, the increasing reliance on email makes it an enticing target for fraudsters, especially given the uptick in remote work. 

The assumption is that security—and employee vigilance—is more lax with more people working at home. And fraudsters just might be onto something. According to the Internet Crime Complaint Center (IC3), there were 21,489 BEC complaints in 2023, accounting for losses of over $2.9 billion. Another report shows that phishing attacks are rising, and mobile devices are especially vulnerable. 

There are a couple of reasons for the shift in risk: 

Globalization and digital transformation have changed the game. Businesses now interact with customers and partners worldwide, and while this opens up new opportunities, it also makes it harder to prevent payments fraud. Enter the era of digital footprints and sophisticated social engineering tricks. Fraudsters can now operate from thousands of miles away, leveraging technology to spoof phone numbers, forge documents, and even create entire spoofed websites. The days of simple scams are long gone; we’re now dealing with advanced digital deception.

Relying on manual vendor change management and onboarding processes is like building a fortress with a wide-open back door. Each step involving human intervention— verifying a new vendor or changing banking details—presents an opportunity for fraudsters to exploit. Employees may overlook subtle signs of fraud or fall victim to social engineering tactics. As businesses continue to handle a significant volume of vendor changes annually, the margin for error only widens.

Email technology makes it easy for cyber criminals to pose as legitimate business associates over email. Think of email as a physical letter in an envelope. An email contains “envelope headers” that dictate its routing and delivery through email software, just as an address on an envelope enables postal workers to deliver a letter. Email also has “message headers” in the message itself, similar to the address at the top of a letter inside an envelope. Since email software only uses the envelope header to deliver email, the message header can display a different, fraudulent sender — the same way the name on a letter may differ from the name on the envelope.

When a recipient opens an email, the software displays the message but hides the envelope header. This allows cybercriminals to assume the identity of anyone they think might facilitate a payment.

Social engineering has evolved—and it’s coming for your vendor payments. Let’s zoom in on two of the most common (and costly) tactics hitting inboxes today.

Phishing is the granddaddy of online fraud, and it has evolved significantly. Today’s scammers don’t just send out generic emails with suspicious links. They create fake websites that mimic legitimate ones, complete with chatbots and customer service interfaces. These phishing expeditions are highly targeted, often impersonating trusted vendors or business associates to trick recipients into revealing sensitive information.

Vendor impersonation fraud has become a sophisticated art. Fraudsters hijack real email accounts and send convincing requests for banking information updates. Your overwhelmed vendor desk, buried under piles of paperwork, might miss the subtle discrepancies, such as an extra letter in the email domain or slight variations in invoice formats. As a result, it’s a bit trickier to prevent payments fraud.

These scams work because they blend into the noise of everyday operations. But with the right verification steps and automated guardrails in place, you can stop fraud before it hits your bottom line.

Manual processes are prone to errors. An overworked employee might miss a crucial detail or fall for a convincing phishing email. Automation helps prevent payments fraud by ensuring consistent and thorough verification processes. Automated systems don’t get tired, and they don’t make judgment errors under pressure.

Automated systems can also cross-check vendor information against multiple databases quickly and accurately. This includes verifying tax IDs, bank account details, and other critical data points. Automating these checks reduces the risk of fraudsters slipping through the cracks.

Manual processes don’t scale—and they don’t protect. An automated platform can help by building consistency, enforcing controls, and cutting off common fraud entry points.

Here’s how:

• Instant identity verification: Cross-check tax IDs, bank details, and business registration data
• Controlled workflows: Route approvals through the right roles—no more “just this once” side deals
• Immutable audit trails: Know who changed what, when, and why
• Built-in fraud screening: Compare inputs against third-party databases and sanctions lists

It’s not about removing people—it’s about removing manual decision points that fraudsters exploit.

Chubb, a world leader in insurance, offers the following tech tips to fortify against fraud. 

Sender Policy Framework (SPF): This email authentication technique prevents spammers from sending messages on behalf of your domain. By publishing authorized mail servers, you can help verify the origin of emails.

Domain-Keys Identified Mail (DKIM): This adds encrypted signatures to emails, confirming that the content hasn’t been altered.

Domain-based Message Authentication, Reporting & Conformance (DMARC): Building on SPF and DKIM, DMARC adds reporting capabilities, enabling the rejection or quarantine of suspicious emails.

Multi-Factor Authentication (MFA): Adding an extra layer of security, MFA requires users to provide additional information beyond their username and password, such as a code sent to their phone.

Tools like PaymentWorks allow you to manage all payee information in one secure location. This centralization reduces redundancy and ensures that all vendor data is verified and up-to-date.

Continuous Monitoring and Verification

Automated systems can continuously monitor vendor information for any changes or red flags. Regularly updating and verifying this information ensures that you always deal with legitimate entities and their clean, accurate payment data. Implement protocols that require multiple channels of verification for any significant changes to vendor details.

Implementing Robust Audit Trails

An audit trail is your internal detective. It records every step of the vendor onboarding and management process, allowing you to track who did what and when. This transparency is crucial for catching discrepancies and ensuring compliance.

Guarding against social engineering fraud is a never-ending battle. As fraudsters become more sophisticated, your defenses must evolve. By leveraging automation, implementing multi-layered security protocols, and fostering a culture of vigilance, you can protect your organization from the ever-present threat of social engineering fraud.

If you suspect your organization has fallen victim to fraud, you need to act fast. Here’s your step-by-step action plan for handling a fraud incident, with a specific focus on Business Email Compromise (BEC):

Immediately contact your bank to recall any payment that has been made. Time is of the essence here; the faster you act, the greater the chance of recovering funds.

Pro Tip: Follow up with a written confirmation to ensure your request is on record.

File a complaint with the FBI through their Internet Crime Complaint Center at www.ic3.gov. This step alerts the FBI’s Recovery Asset Team, which specializes in fraud recovery.

It’s crucial to involve law enforcement as quickly as possible to maximize the chances of tracing and retrieving lost funds. Your evidence could be the missing piece in an ongoing investigation!

Preserve all emails, documents, and communication logs related to the incident in their original state. This evidence is essential for investigations and forensics.

Consider involving a digital forensics specialist to help gather and preserve electronic evidence properly.

Once you have completed the above steps, contact your insurance provider and report the incident as per your policy’s instructions. Insurance coverage may help mitigate the financial loss.

Notify senior leadership, your IT department, and your legal team about the incident. This ensures that everyone is aligned and ready to respond appropriately.

Pro Tip: Consider appointing a Fraud Response Team within your organization to handle such crises.

After handling the immediate crisis, conduct a thorough analysis of how the fraud occurred. What vulnerabilities were exploited? How can you prevent payments fraud from happening again?

The aftermath of a payments fraud or even an attempt can be daunting, but it’s also an opportunity to build a stronger, more resilient organization. Here’s how to reinforce your defenses:

• Regularly review your organization’s risk profile to identify potential vulnerabilities and implement appropriate controls.
• Engage third-party experts to perform an independent assessment of your payments fraud risk.

• Review and update your organization’s policies on fraud prevention, detection, and response. Ensure that they reflect the latest threats and best practices.
• Create a documented plan that outlines the steps to take in case of a fraud incident, including key contacts, notification procedures, and communication strategies.
• Ensure that all employees are aware of the plan and know whom to contact if they suspect payments fraud.

• Encourage employees to stick to the documented processes and to keep track of when they are asked to make exceptions to them (use this!)
• Train your team to question everything. A healthy level of skepticism can prevent fraudsters from slipping through the cracks. 
• Verify any unusual or urgent requests through multiple channels before taking action.
• Reinforce a zero-tolerance policy and ensure that even the highest-ranking individuals adhere strictly to vendor verification processes. No one, not even your CEO, should bypass protocols.

• Stay informed about the latest fraud schemes and tactics through industry news, webinars, and professional organizations.
• Consider enrolling key personnel in fraud prevention to stay ahead of emerging threats.

Why wait until a fraudster strikes when you can prevent it from happening in the first place? Here’s a comprehensive list of measures your organization can implement to keep fraud at bay:

• Multi-Factor Authentication (MFA): Ensure MFA is enabled for all sensitive systems, especially for email and financial accounts.
• Regular Software Updates: Regularly update software, systems, and antivirus programs to protect against vulnerabilities.
• Network Security: Use firewalls, intrusion detection systems, and encryption to protect your organization’s data and network.

• Conduct regular training sessions on recognizing phishing emails, suspicious links, and unusual requests.
• Implement simulated phishing campaigns (also called “penetration testing” or “pen testing”) to test employee awareness and reinforce best practices to prevent payments fraud.
• Appoint an internal “Fraud Czar” who is tasked with keeping up-to-date on trends in vendor impersonation, executive impersonation, invoice fraud, business email compromise, and all other social engineering scam tactics.

• Dual Authorization: Require dual approval for all financial transactions above a certain threshold.
• Segregation of Duties: Separate responsibilities so that no single individual has complete control over financial transactions.
• Conduct Regular Audits: Schedule periodic internal and external audits of vendor accounts, transactions, and processes to identify any irregularities or potential fraud risks.
• Implement Ongoing Monitoring: Monitor transactions for any unusual patterns, changes, or discrepancies in vendor payment requests.

• Document Every Step: Implement a detailed and well-documented vendor onboarding strategy. Make sure every team member understands their role in the process, from verifying vendor details to cross-checking information.
• Conduct Rigorous Due Diligence: Require thorough background checks and verification for all new vendors, including cross-referencing with sanctions lists, validating tax IDs, and confirming business legitimacy.

• Verify changes in payment instructions directly with vendors through a trusted communication channel (hint: not email!)before processing any transactions.
• Document vendor change management procedures  to guard against bad actors. 

• Ensure Regulatory Compliance: Stay up to date with local, state, and federal regulations related to vendor management, fraud prevention, and financial transactions. Regular compliance checks act as an additional layer of defense.
• Maintain a Compliance Checklist: Use a compliance checklist (like this one!) to ensure your organization meets all regulatory requirements and best practices for vendor verification.

• Automate Vendor Management Processes: Use an automated vendor onboarding platform to minimize human error and detect potential fraud risks. Automation can provide real-time alerts for inconsistencies, expired documents, or suspicious activity.
• Real-Time Checks: Implement tools that offer continuous monitoring of sanctions lists and fraud databases to prevent onboarding high-risk vendors.

Preventing payments fraud doesn’t have to be a never-ending nightmare. With the right tools, knowledge, and proactive measures, your organization can fend off fraudsters and stay safe in the wake of any attack. Use the tools and checklists we’ve outlined above as your ultimate guide to being prepared, responding effectively, and preventing future fraud attempts.

Equip yourself with this survival kit and transform your organization into a fraud-fighting fortress. Remember, when it comes to fraud, it’s always better to be prepared than to be haunted by the aftermath!

Stay vigilant, stay informed, and stay fraud-free.

The Vendor Management Appreciation Day (#VMAD) celebration continues this year! And you should join us. 

Why? Because there’s no expiration date on honoring one of the most important, under-recognized roles across industries: vendor management.

Join us in observing Vendor Management Appreciation Day (VMAD)! We’re gearing up for this year’s celebration, and we want you to be a part of it!

VMAD is a new holiday geared toward unifying vendor management professionals and celebrating innovation in the field.

Moreover, we’ve released gifts each month to help you supercharge your vendor management efforts. Additionally, we’re planning some awesome events so everyone can connect and celebrate the important, strategic role of vendor management.

In the meantime, learn more here, and grab some free vendor management goodies.

Explore our blogs below. They’re filled with action items you can implement right away.

Fraudsters Love Your Company Culture. Here’s How to Fix It (and Stop Fraud) With Vendor Onboarding Best Practices

Why a Weak Vendor Identification Process at Onboarding Makes You Vulnerable to Fraud

Vendor Verification: How NOT to Do it and What to Do Instead

The New Face of Vendor Fraud Cases

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