How to protect your business from common types of fraud

In the complex world of business operations, both small businesses and larger companies are susceptible to various types of fraud. Protecting your business against external fraud is critical to maintaining its financial health and safeguarding sensitive information. This article explores common external fraud types and offers strategies to prevent fraudulent activities, ensuring the security of financial data and bank accounts.

Just how big a problem is fraud for businesses?

According to the PwC Global Economic Crime Survey 2022, 64% of businesses in the UK experienced fraud, corruption, or other economic/financial crime in the past 24 months. This was a substantial increase from 56% in 2020 and 50% in 2018. The UK's rate is higher than the global rate of 46% and is second only to South Africa​.

Some of the most pressing concerns for businesses are Authorised Push Payment (APP) Fraud, which involves fraudsters deceiving victims into willingly making fraudulent payments, and cyber-related frauds, including data theft and fraudulent card payments.

Types of financial frauds in business

Financial fraud is a major issue for businesses, involving different kinds of deceptive practices aimed at gaining unlawful financial advantages. These frauds can be complex, like cybercrimes, or more straightforward, like fake invoicing. Let's explore some of the most common types of financial fraud that businesses face today.

Cyber fraud

Cyber fraud involves online fraudulent activities targeting a company's digital assets and data.

Scenario

An employee receives an email that appears to be from a trusted vendor, asking them to click on a link to update their account details. The link redirects to a phishing site, which captures the employee's login credentials. Using these credentials, fraudsters gain access to the company’s network, leading to a data breach that compromises customer and financial information.

Protection strategies:

• Implement robust anti-virus software and keep security systems up to date.
• Educate employees on recognising signs of online fraud and the importance of strong passwords.

Invoice fraud

This type of external fraud involves sending false invoices to a company, hoping for payment without verification.

Scenario

The accounts department receives an email with an attached invoice from what seems to be a regular supplier. However, upon closer inspection, it was noticed that the bank details on the invoice have changed. It turns out to be a fraudulent attempt to redirect a legitimate payment to a scammer's account.

Protection strategies:

• Verify all invoices against actual services or goods received.
• Perform regular audits and financial controls to detect discrepancies.
• Train employees to spot warning signs of fraudulent activities like fake invoices.

CEO fraud (a form of Impersonation fraud)

CEO fraud involves the impersonation of high-level executives to authorise fraudulent financial transactions.

Scenario

The CFO receives a seemingly legitimate email from the CEO, who is currently on a business trip. The email urgently requests a wire transfer to finalise a confidential deal. The CFO, not wanting to delay the deal, proceeds without verifying the request directly with the CEO, only to later find out it was a scammer impersonating the CEO.

Protection strategies:

• Implement strict policies for verifying financial requests, especially those received via email.
• Encourage a culture where employees feel empowered to question unusual requests.

Credit card fraud

This type of fraud occurs when stolen credit card information is used to make unauthorised transactions.

Scenario

An employee uses a company credit card to make a purchase on a less secure website. The website is compromised, and the credit card details are stolen. Soon after, unauthorised transactions start appearing, indicating the card information is being used fraudulently elsewhere.

Protection strategies:

• Use encrypted payment processing systems and monitor credit card transactions.
• Train employees in handling credit card information securely.

Identity theft

Identity theft involves using stolen personal or business identities to commit fraudulent activities.

Scenario

A company’s HR database is hacked, and the personal information of employees is stolen. Fraudsters use the business owner's identity to open new bank accounts and take out loans in the company's name. The identity fraud was uncovered when the owner received notifications of credit inquiries and unfamiliar account statements, indicating the extent of the financial impersonation and the potential for significant credit and financial damage to the business.

Protection strategies:

• Secure all employee and business director information and monitor bank details for unusual activities.
• Educate employees about safeguarding their personal and business-related information.
• Implement cybersecurity measures like firewalls and intrusion detection systems to prevent such breaches.

Scam calls

Fraudulent calls, often targeting employee or company phone numbers, seek to gain access to sensitive company information or direct financial gain.

Scenario

An office receptionist receives a call from someone claiming to be from the utility company, stating that the business's electricity will be cut off due to unpaid bills unless an immediate payment is made. The receptionist, under pressure, provides company bank details over the phone, only to later discover it was a fraudulent call.

Protection strategies:

• Train security personnel and employees to recognise and report scam calls.
• Implement a policy of verifying the caller's identity. This can involve asking the caller for specific information that a legitimate caller would know or confirming their identity by calling back on an official number.
• Leverage caller ID verification technology to help identify potentially fraudulent calls

Investment scams

Investment scams involve deceptive offers of high-return opportunities, tricking businesses into investing in fraudulent schemes.

Scenario

A business is approached with an investment opportunity that promises high returns in a short period. The offer comes from a seemingly reputable firm with professional-looking documentation and a persuasive sales pitch. The business invests a significant amount, but the promised returns never materialise, and the investment turns out to be a scam.

Protection strategies:

• Conduct thorough due diligence on any investment opportunity, including researching the firm and verifying its credentials.
• Consult with independent financial advisors or legal counsel before making significant investments.
• Be sceptical of investments that promise unusually high returns with little or no risk.

What to do if you are a victim of business fraud?

If your bank account shows unauthorised access or transactions, immediately contact your bank or payment service provider (PSP). Time is of the essence in such situations to prevent further unauthorised activity.

If a credit or debit card is involved, promptly freeze or block the affected card. For businesses using services like MultiPass, you can quickly manage this online, including reissuing a new virtual card in seconds. This ensures your business operations remain uninterrupted while dealing with the fraud.

If your personal data or IDs are compromised, take immediate steps to secure your accounts and monitor them for any suspicious activities. Change passwords and security questions for all related accounts, and consider credit monitoring services to keep an eye on your credit reports for any unusual activities.

Don't forget to report the fraud to the local police or law enforcement agency. This is crucial for legal proceedings and potential recovery of losses. According to IFF Research, the majority of surveyed companies that fell to fraud between 2018-2020 did not report it.

Conclusion

Protecting a business from external fraud, a form of financial crime, requires vigilance, education, and robust internal and external security measures. By being aware of the many forms of fraud and implementing effective strategies, businesses can safeguard their revenue, sensitive information, and overall financial well-being. Always remember, the responsibility to prevent fraud and protect your business lies with both the business owner and the employees, making it a collective effort.