For as long as people have been running businesses, other people have used dishonesty and manipulation to steal from them. The problem of commercial fraud is so long standing that the UK has had laws against it since 1275. And just as technology has opened up a world of opportunities to companies, fraudsters have jumped on the bandwagon and found new ways to deceive.
In fact, the issue of commercial fraud in the modern day is more destructive than most people realise. The best estimates currently put the annual cost of fraud to UK businesses at somewhere between £106 and £140 billion. Graydon’s own investigations, over the last 25 years, identified more than £0.5 million of suspected fraud every week. On a more personal level, with an average loss of £7,000, fraud can lead to businesses being forced to shut up shop and people losing their jobs.
In this series of articles, we’ll introduce you to the changing threat of commercial fraud, how to spot it as it evolves and how to protect yourself and your business.
Commercial fraud is a loose term legally, but it centres on the use of deception for personal gain at the expense of a business. This includes false representation, bribery, breach of contract and wrongful claims. Commercial fraud commonly takes the form of misappropriation of funds, overstated claims and false accounting.
Technology has provided new and worrying ways for fraudsters to target businesses. Ranging from the simple phishing scams of the internet’s early days to sophisticated identity theft cartels, cybercrime is now the UK’s number one fraud.
Adding to the problem is the fact that many businesses do not have an effective commercial fraud plan in place. This may be because many people don’t understand the full extent of the damage commercial fraud can wreak on their businesses.
People tend to think about the impact of fraud in financial terms. Often, the extent of the damage is only measured by the amount of money lost or information stolen. If this is relatively small, the fraud can sometimes be filed away in the ‘could have been worse’ pile.
Unfortunately, the effects of fraud can go much wider than this. As well as the economic impact, a business’ reputation can be seriously affected. This damage is much harder to quantify but can soon lead to a number of problems for a business.
Companies are encouraged to be transparent about successful frauds against them, keeping the public and other stakeholders informed at every stage. While this can help businesses as a group get better at protecting themselves, it can leave individuals with a tarnished reputation in the eyes of customers, clients and business partners. Customers might feel less confident about doing business with you and stakeholders might wonder about the rigour of your internal processes.
There could be other costs too. A business that is found responsible for allowing a fraud to take place could be fined by regulators or subject to claims from out of pocket customers. On top of dealing with the fallout of the fraud itself, preparing for an investigation or a day in court are likely to be unwanted time and energy sinkholes.
The damage can continue to spread long after the initial fire seems to have been put out. The morale of your workforce could plummet if there is a feeling that the fraud should have been prevented or that blame was wrongly attributed to them. Investors could also lose confidence or worst of all, customers and clients could begin looking elsewhere.
Education and training are key to increasing the resilience of the business community to commercial fraud. Awareness and prevention should be the responsibility of everyone in the business. Anyone who is involved with credit applications, tenders, contracts, purchase orders and invoices should take note about the common forms fraud can take and the warning signs.
But, first things first, how can a business that is a victim of fraud act quickly to limit the damage and get back onto the front foot?
There are three main steps you should take immediately:
The first thing you should do is stop the fraudulent activity. A lot of preventative work can be done by thoroughly checking the details of a new client, credit application or unusually large order. Maintaining clear oversight over your internal processes will help you spot any strange occurrences.
It may be a good idea to initiate your internal fraud policies without announcing it broadly at this stage, as you could alert the fraudster, or a collaborator, that the fraud has been detected.
Next, collect as much evidence as you can. This will not only help you work out exactly what happened and make sure it doesn’t happen again, but it will put you in a much better position if authorities decide to launch an investigation.
You should make sure you notify everyone that needs to know about the attempted fraud. It might be tempting not to disclose it, but keeping it a secret will make it hard to use the experience to train employees to prevent further fraud. It also looks very bad for a company if news of a fraud leaks and it appears they have tried to conceal it from customers.
Report the incident to Action Fraud, the UK’s national fraud and cybercrime reporting centre that is run by the City of London police alongside the National Fraud Intelligence Bureau (NFIB). It has an online reporting service and cybercrime specialists are available to offer help and advice over the phone.
In the next article in this series, we’ll introduce you to the many different forms commercial fraud can take.