Eight tips to avoiding fraud on an industrial scale

Commercial fraud costs, it’s on the rise and the villains are getting faster, smarter and more sophisticated. Industry and commerce looks like an enormous leaking bucket of cash to fraudsters, offering huge opportunities.

Last year, government agency the National Fraud Authority, estimated UK fraud was now costing us all more than £70 billion a year.

Conservative estimates put the annual cost to business, industry and commerce in the region of around £16 billion, with losses equating to more than 0.5% of annual turnover – of which just 0.18% is detected fraud and 0.36% lost, hidden or undetected fraud.
But in all likelihood the cost is far greater. The impact of fraud stretches from reputational damage, customer disputes, supplier disputes, drains on staff time, higher processing costs and resources, to poor cash flow, failed payments, direct revenue losses and outright insolvency.

Fraudsters are incredibly inventive. They use a host of opportunist routes to indiscriminately target their victims and crucially, can be incredibly hard to accurately spot. They may be working alone or part of serious organised criminal gangs that use stolen funds to bankroll other crimes such as human trafficking, drug supply or terrorism.

They also favour going after the easiest targets again and again.

Soft targets often hit the hardest

There are now more opportunities and increasingly complex ways to transact. As a result, there are more places to commit fraud – including numerous websites, aggregators, supermarkets, retail outlets. At the same time, there has been a marked switch in the way business is done, with millions of daily transactions now completed via online channels, often with the use of mobile and hand-held devices, as well as social media platforms. This in turn increases opportunities for fraudsters to develop numerous false identities.

But the rising demand for digital channels has come at a cost. Driven by price-conscious consumers, fickle customers and web-savvy shoppers, businesses are being forced to walk a risk-versus-reward tightrope in order to strike the right balance between attracting and retaining customers through competitive pricing, or seamless customer service – all set against a backdrop of up-to-date fraud detection and prevention measures.

As a result, some businesses may be more inclined to take risks and accept lower levels of due-diligence instead of completing more comprehensive fraud data checking, verification and authentication processes.

Customer fraud

When false information is deliberately supplied with the specific intention of defrauding a business for personal or commercial gain. They may come in the shape of a customer, supplier or contractor.

But it can be spotted and blocked simply by screening and checking customers against a broad range of data available to confirm given details, flag up any anomalies and known fraud information. Customer fraud is often spotted by comparing information supplied on applications, such as date of birth, address, principal bank accounts, with details already held on a variety of databases.

It’s a quite route to critical insight into any fraud risks, helping highlight any anomalies against previous applications and positive matches against previous known or suspected fraudulent applications. As a result, it is possible to accurately measure, prioritise and make an informed decision on any arrangements with the suspect customer.

ID theft and misrepresentation

When someone steals or creates another’s details. Again, the fraudster may simply look like a legitimate customer, supplier or contractor. New or updated, legitimate-looking payment details may be sent to the accounts payable team on a bogus letterhead, all under the guise of an approved or regular supplier.

According to anti-fraud body CIFAS, identity theft and account takeover are now among the most virulent types of fraud being committed in the UK. To help tackle it, consider adopting a fast, online anomaly-checking system that matches applicants and customers’ details against a variety of databases, including any credit bureaux information. Inconsistencies are often quickly highlighted via a set of pre-determined benchmarks, which score and flag-up potentially fraudulent transactions. Also consider sharing any information that emerges with anti-fraud bodies. It’s good business practice, helps protect suppliers, legitimate customers and reputations.

Account takeover

It’s simply an alternative form of ID theft and occurs when another’s account information is stolen, for example through computer hacking or interception of a credit card, and starts using the account without their knowledge or permission. On the face of it corporate impersonators are likely to look like a new, legitimate, or existing customer, supplier or agent.

But business can shore up any vulnerabilities in this area by ensuring IT systems are protected and sensitive data secured with security policies fully understood and implemented by all personnel. It’s also worth conducting periodic and systematic screening of existing accounts.

By comparing information against an array of data sources makes it far easier to identify potentially fraudulent and suspicious activity. Scrutinising spending patterns, transactions, and account usage paying particular attention to anomalies or unusual behaviours, will also yield results as high-risk accounts are likely to be quickly highlighted. Well-implemented identity, transaction verification and authorisation systems will help underpin this strategy.

Sleeper fraud

Sleeper fraud is also known as ‘Bust Out’ or ‘Advances’ fraud. A so-called sleeper is someone who starts out slowly, develops a good relationship and builds up a substantial credit line, before disappearing with a sizeable haul that they have no intention of paying for. Again, the fraudster may simply look like a legitimate customer, supplier or contractor.

Their fraud may be underpinned by the creation of a fake company. Although there may not be much available information about the business, the individuals behind it can be screened and could be red-flagged or deemed as suspicious.

Developing insight into genuine suppliers’ behaviour, will ensure businesses are well placed to gauge or act on any unusual activity which may also indicate fraudulent behaviour. It is always worth screening new suppliers and comparing them against as broad a range of information as possible. It may be that a customer has a track record of failing to pay, or disappearing with significant sums, or unpaid-for goods.

Payments and transactions fraud

Clearly back-office processes must be secure and efficient to ensure frauds and suspicious behaviour doesn’t have an impact on customer service, so it’s worth reviewing and checking all account details as often as possible to ensure they are genuine. It also offers critical insight into any fraud risks and helps safeguard legitimate customers.

Insider Fraud

In many ways among the most insidious forms of fraud, it usually emerges when an employee, agent or trusted adviser deliberately uses or passes on confidential information, with the specific intention of cheating an organisation. The sad likelihood is that many staff may already know, or be well acquainted with the fraudster.

It can be tackled by running background and financial checks on all new starters and if necessary, be prepared to regularly check information on existing employees including their on-going financial health and any recent criminal convictions. IT systems need to be protected and sensitive data secured with security policies fully understood and implemented by all personnel.

It’s also worth simply evaluating any commercial referrals to help highlight any suspicious links to possible fraud rings. There’s information available that’s shared between anti-fraud agencies, so it’s always worth making an effort to stay one step ahead of fraudsters. Consider out-sourcing your background checking to a team of specialists. It enables businesses to take a step back from the process. And remember – genuine employees will never have anything to hide.

Professional Fraud

Occurs when dishonest professional advisers or business intermediaries try to divert funds for their own gain. They may come in the shape of a lawyer, accountant, broker, agent or a contractor. But as with customer fraud, screening and checking professional advisers against all available data is vital.

Before appointing any professionals, it is important to conduct due diligence drawing on recommendations, references and quality of work. Using a verification service that enables fast checks on given bank account details, certifications, accreditations or memberships they have supplied will always help.

And another thing…be alert to money laundering

Money laundering is a huge global problem. As an indicator, the International Monetary Fund estimates that around five per cent of the worldwide economy involves laundered money. Consequently very significant resources are used in tackling it.
Businesses within the broad ‘regulated sectors’ of banking, investment, money transmission and key professions, are all required to be especially vigilant and immediately report any suspicious activity.

But under UK legislation money laundering offences need not even involve money, since the legislation covers assets of any description. So, anyone committing any acquisitive crime in the UK, may also be committing a money laundering offence as well. Crucially this could also include tax evasion.

It’s a complex area and there’s absolutely no room for doubt, to avoid unwittingly being party to this offence always ensure staff are alert and well briefed on this area of law. Step back, review and delve into any odd or suspicious cases before taking action. In common with all businesses, retaining and safeguarding legitimate customers while shutting out potential fraudsters is critical.