This article covers how to recognise corporate fraud, plus covering some initial steps for fraud prevention. Corporate fraudsters often pose as legitimate customers, suppliers, or third party business relations. After all, why wouldn’t they? Wearing a mask of legitimacy is still proving to be one of the most effective ways of turning businesses into corporate fraud victims. As a result, managing the risk of corporate fraud requires continuous monitoring to stop a loss of funds, a damaged reputation, or even business failure.
Are you trading with a legitimate company?
Recent analysis from Graydon shows that one in every 635 companies show signs of fraudulent behaviour, which equates to circa 4,200 companies in the UK. In Central London, one out of every 343 companies displays fraudulent behaviour. So in a world where fraudsters’ methods of execution are gaining complexity, how can businesses spot the potential dangers of corporate fraud?
Corporate Fraud - the main signs
An unusual number of documented changes in a short time frame should be considered warning signs. The best time to pick these up is at the credit application stage. These changes could include:
- The appointment of a new company director
- A sudden change of address where goods are to be supplied
- Filing new accounts (profit / loss / balance sheet) quickly after year end
- An unusual increase in annual company performance
- Many credit checks in quick succession
Corporate Fraudsters have developed a variety of inventive methods to scam businesses: How to avoid invoicing scams
Assessing, managing and preventing the risks of corporate fraud is ultimately the responsibility of each organisation. Companies should make sure they are getting all the information they need to carry out their own risk assessment. Corporate fraud should be an issue for the whole business.
Preventing the threat of corporate fraud comes down to knowing your customers, suppliers and all third parties. Fighting corporate fraud is the responsibility of your whole organisation.
Fraud prevention tactics
Some key steps to avoid becoming a victim of fraud include:
- Know your customer (KYC)
- Check the company registration number (the one UK data item that can never change)
- Credit check all applications for credit using a credit reference agency
- Validate all delivery addresses
- Check the company auditors are registered with a recognised professional audit body
- Run a domain name check
- Check for valid VAT numbers
The role of Companies House
The main functions of Companies House are to incorporate and dissolve limited companies; store company information delivered under the Companies Act; and make this information available to the public. This function does not include validating or verifying information stored within the registry. So for people whose business is scamming companies, they could use it as a repository for potential targets.
Share your knowledge
It’s also important to build a community of awareness, as well as a circle of protection among your industry contacts.
“If you become aware of suspicious activity, please make people aware within your industry. You may be the beneficiary of the same information later down the line,” says Alan Norton
You can also report corporate fraud directly: How to report business fraud in the UK