on the Rise: How Corporates Can Fight Back

Don Hollingsworth, Ameren Corporation Nasreen Quibria, Association for Financial Professionals May 28, 2009

Highlights of the 2009 AFP Payments Fraud & Control Survey

Agenda

Introduction

Survey Methodology

Fraud Attempts & Losses by Payment Method

Risk Mitigation Tools

Final Thoughts

Introduction

• The Association for Financial Professionals (AFP) serves a network of more than 16,000 treasury and finance professionals. Headquartered in Bethesda, MD, AFP provides members with breaking news, economic research and data on the evolving world of treasury and finance, as well as world-class treasury certification programs, networking events, financial analytical tools, training, and public policy representation to legislators and regulators.

• In Payments … AFP seeks to promote greater awareness of actions that payments system participants can take to guard against the fraud that can undermine their organization’s security and financial controls as well the safety and soundness of the U.S. payments system.

Introduction

• Based in St. Louis, among largest investor-owned electric & gas utilities in U.S.

• Serves 2.4 million electric & one million natural gas customers across 64,000 square mile area of Missouri

• Owns more than 16,000 megawatts of generating capacity

• Operates non rate-regulated generation, development, marketing & fuel service companies

Ameren Corporation (NYSE: AEE)

Survey Methodology

• Annual survey conducted since 2005

• Online survey

• 629 companies with annual

revenues ranging from below $50 million and above $20 billion were surveyed in January of 2009

Attempted or Actual Payments Fraud

55%

68% 72% 71% 71%

24%

6%

-1% 0%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2004 2005 2006 2007 2008

Attempted or Actual Payments Fraud % Growth

Almost three-quarters of organizations experienced attempted or actual payments fraud.

Fraud Attempts & Losses by Payment Method

N/A - Data was not collected in the survey

*Of organizations subject to fraud, in using own corporate/commercial cards to make payments 44% of organizations suffered a

financial loss; only 17% or one out of six organizations suffered a financial loss from accepting corporate/commercial cards

Payment Method

Subject to Fraud

Suffered Financial Loss from Fraud

Responsible for Greatest Financial Loss

Check 91% 47% 60%

ACH 17%

ACH Credits 7% N/A 3%

ACH Debits 28% N/A 5%

Corporate/Commercial Cards 14% 44%/17%* 10%

Consumer Cards (Debit/Credit) 18% N/A 20%

Wire 6% N/A 1%

Corporate Experience

• Credentials used to redirect vendor checks

• “Secret Shopper”

• “Phishing and “Whaling”

Check Fraud

• Types of Check Fraud

• 44% of organizations use Remote Deposit Capture; 1% of those organizations were subject to fraud from the service

• Twenty-two percent of organizations have been contacted by a third party claiming to be a “holder in due course”

Counterfeit checks (other than payroll)

with the organization’s MICR line data

Payee name alteration on

checks issued

Loss, theft or counterfeit of employee pay

checks

72%

59%

27%

Origins of Card Fraud

70% 11%

32%

Unknown external party

Third-party or outsourcer

Employee

78%

Outside Party

Internal Party

Cost of Cards

Organization Suffering Loss Percentage

My organization 44

Merchant 42

Card issuing bank 33

Card processor 14

No organization suffered financial loss 11

Other 14

Reason for Financial Liability from Accepting Cards

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Card-not-present merchant assumes

liability

Did not authenticate cardholder (e.g.,

cardholder’s address)

Delayed chargeback response

Other

83%

50%

33% 33%

Estimated Median Value of Payments Fraud

$26,600

$23,300

$13,900 $15,200

-12%

-40%

9%

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

2004 2006 2007 2008

Estimated Median Value of Payments Fraud % Growth

The median financial loss from payments fraud in 2008 was $15,200.

Risk Mitigation Tools P

aym

en

ts

All

Respondents

Revenues over $1 billion

Revenues under $1

billion

Ch

eck

s Positive pay/Reverse positive pay 82% 87% 79%

Payee positive pay 50% 60% 41%

“Post no checks” restriction on depository accounts 34% 42% 29%

AC

H

ACH debit blocks 71% 79% 60%

ACH debit filters 55% 62% 49%

ACH positive pay 19% 19% 18%

Universal Payment Identification Code for ACH credits 5% 7% 3%

Oth

er

Other 5% 4% 5%

Internal Processes Best Practices

• 86% stopped providing payment instructions by phone or fax (percent)

• 82% increased use of electronic payments for business-to-consumer and business-to-business transactions

• 82% reduced the number of bank accounts

• Organizations also use of separate accounts for different payment methods as a fraud control technique:

– 75% of organizations maintain separate accounts for different payment methods and types.

– 71% have separate accounts for disbursement and collections

– 60% of organizations have separate bank accounts for checks and ACH payments.

Final Thoughts

Fraud will always be around, but corporates can mitigate risk via:

• Use of financial institutions anti-fraud services

• Implementation of tight internal controls

• Constant vigilance

Thank you…

Don Hollingsworth, CTP

Assistant Treasurer

Ameren Corporation

P: 314.554.2838

E: dhollingsworth@ameren.com

Nasreen Quibria

Director, Payments

Association for Financial Professionals

P: 301.961.8676

E: nquibria@afponline.org