Article
Written by Colm Hebblethwaite
Posted on 06/10/2019

New technology, same tactics – exploring common types of commercial fraud

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One of the tricky things about commercial fraud is that it shifts and adapts to developments in technology and business practices. For every new solution that promises to save businesses time or cut red tape, fraudsters will be looking to see if they can use it to trick companies into handing over their money or goods.

But even though the tools they use evolve and change, corporate fraud can generally be grouped into four main types. Here is a quick lowdown on each one:

Abuse of trust

Businesses rely on being able to trust the partners they work with. Fraudsters often try to build a commercial relationship with a company before exploiting them out of money and assets.

An example of this is known as ‘short firm fraud.’ You may start working with a new company; they place several smaller orders with you and pay you promptly for each one. Things seem to be going well. Then they place a much larger order with you. And based on their track record so far, you accept the order, deliver the goods, and never hear from them again.

Other examples include companies trading immediately before they are about to be declared insolvent and directors who continue operating while suspended or disqualified.

Confidence tricks

Confidence tricksters play on human characteristics, such as naivety, compassion, vanity, greed and vulnerability, to steal your money.

For example, let’s look at the invoice scam that cost UK companies almost £93 million in 2018.

This is when fraudsters pose as legitimate payees of a company and contact an individual to ‘update’ their bank details for their next payment. Employees can fall into the fraudster’s trap and change the details without thinking to verify them. The fraudster will walk away with the cash and the business will be out of pocket, unable to recover the money.

It’s estimated that 3,280 invoice and mandate scams took place across UK businesses within 12 months, with an average loss per case of over £28,000. [GB2] 

Forgery

When forgery is mentioned, most people will think of bank notes, signatures or works of art being imitated. Within a corporate environment forgery is more often about falsifying company information to gain advantage.

An example of this is a company needing more investment to stay afloat. To get a quick financial boost, the company misrepresents its financial position by overstating its revenue or assets, not recording its expenses or underplaying its liabilities.

If a company does not record all its expenses its net income is overstated. But in reality, it may be losing money. The false accounts make the company look more attractive to investors, suppliers and customers.

Theft

In the modern corporate world, theft often involves people stealing your digital assets, reputation or identity data. Stealing can also involve digital information being copied and used without you knowing, so you may not even realise something has been taken from you.

How many times do you see people leave their laptop unattended on a train or in an airport lounge while they go to the bar or bathroom?

While they are away, an opportunist criminal could access and copy confidential and privileged information within seconds. This could be used for commercial and financial gain, or even expose you to potential blackmail as thieves extort money in exchange for stolen files.

Are you doing enough to prevent fraud?

So, we’ve defined the four most common areas of corporate fraud and given examples to illustrate the risks and show how they can impact a business.

In the next three articles in this series, we’ll explore how to prevent fraud from within your business, external systems that can improve your defences, and the importance of educating your employees to detect fraud. But here are some starting points to help protect yourself and your business:

Do your due diligence properly – Before you engage in any kind of transaction or professional relationship with a new entity, you need to be as sure as possible they are legitimate. There are many ways to do this, which we’ll detail in the next article.

Review your internal processes for weaknesses – Fraudsters are looking to exploit weaknesses in the way you deal with transactions or store information, so making sure you are working as securely as possible is important. 

All companies rely on the benefits that digital advances provide as they strive to compete and grow their businesses. But as this article has discussed, it is important to understand the vulnerabilities that technology creates as well as benefits. Don’t let your technology be outsmarted by a fraudster!

Next up, we’ll be looking at the minimum steps you should take internally to implement a robust fraud prevention scheme.