Tips to keep your company safe from fraud

(Updated: 25 April 2024)

Any business that relies on consumers to make a profit, can be a potential target for consumer fraud. It is vital for business owners to remain aware of the various fraudulent practices that are committed by consumers, as they can have a devastating financial impact on your business.

Let us explore the most common types of consumer fraud that may be aimed at your business and what you need to do to minimise your business risk.

What is consumer fraud?

Consumer fraud consists of illicit activities that deceive or mislead a business or individual, resulting in financial loss or physical harm. Small, medium, or enterprise level businesses are at risk from common fraud schemes typically committed by their consumers. The common scams businesses can encounter are false or bad cheques, counterfeit bills, using stolen credit or debit cards, or returning products not purchased from the company in question.

Common types of consumer fraud

Credit card fraud

Credit card fraud can occur when an unauthorised individual manages to obtain your credit card information or steals your credit card with the purpose of making fraudulent purchases. Although credit card fraud is one of the most common types of consumer fraud, it is vital business owners frequently monitor bank statements and report any suspicious activity.

Credit card fraud red flags to look out for:

• Your bank statement contains unfamiliar or suspicious charges.
• The purchases do not align with any legitimate business purchases within a set timeframe.
• The purchases occur outside your region.
• You noted a significant drop in your available credit balance.
• You recently received a phone call requesting the credit card information in question.

What actions you should take:

• Regularly monitor your bank statements to detect unusual activity at an early stage.
• Notify your bank and credit bureau if fraud is detected.
• Immediately cancel the card to reduce further financial losses.
• Educate staff to not hand out sensitive information via phone or email to clients that should know the information.

Phishing scams

Phishing scams can be a nuisance for businesses, primarily because, fraudsters will pose convincingly as legitimate entities or personnel within a company. They use this tactic to trick individuals into revealing sensitive information or prompt an urgent action. These scams typically come in the form of emails, text messages, or phone calls.

Phishing scams red flags to look out for:

• Emails, texts, or phone call demanding an urgent payment be whilst using threatening language.
• Receiving an email from an unfamiliar sender.
• The email or texts contains noticeable (or subtle) spelling errors throughout the message.
• The email contains a link to download an unsolicited attachment.

What actions you should take:

• Always verify the request for payment through the proper channels before releasing any money.
• If the email address appears suspicious, rather flag it and refer to IT.
• Although spelling errors do occur, it is uncommon for work emails to be riddled with them, so be sure to read through the email closely.
• Never click on a link or download a PDF from an unsolicited email as this can contain malware.

Finance fraud

Financial fraud refers to a wide range of financial activities related to transaction and include investment fraud, insurance fraud, statement fraud etc. The fraudster will exploit a person or entity’s trust to manipulate financial systems to receive unlawful gains.

Financial fraud red flags to look out for:

• There are financial documents that cannot be accounted for.
• There are unauthorised transactions on the financial statements.
• Your business only has one person monitoring and managing the accounts, with no oversight.
• The company’s expenses seem to be getting larger with each month, with no indication as to why.
• A member within the team is living beyond their means with flashy cars, expensive attire, and luxury getaways.

What actions you should take:

• Run regular internal audits and set up a strict document handling procedure to avoid documents from going missing.
• Set up an authorisation procedure for payments that requires a specific secondary individual to sign off on all payments.
• Monitor financial statements and query unfamiliar transactions as you see them.
• Run a lifestyle audit on the team annually to ensure employees are not committing fraud in the company for payouts from suppliers or clients.

Return process fraud

Return process fraud, also known as “free renting” or “wardrobing” occurs when an individual purchases a product with no intention of keeping it. We have seen this in movies where an actress will “buy” a dress, leaving the tags on, to return it the next day. This may appear harmless, but it does have financial implications for the business being scammed.

What are the different types of return fraud:

• Bricking scam: This type of return fraud is associated with electronic devices, where an individual will strip the device of its valuable parts to resell privately, and returning the device in its stripped form for a full refund.
• Empty box scam: This type of fraud occurs when a customer falsely claims they have received an empty box rather than the product ordered and claim a refund. This can also refer to dishonest or fraudulent sellers shipping out empty boxes intentionally.
• Wardrobing scam: This is a popularised type of fraud wherein the customer will buy an item, use it once, and return it later.

What actions you should take:

• Require an ID and contact information for returns in conjunction with the receipt. You should also set up a “flagged orders” process to route out recurring issues associated with a particular ID or contact number.
• Eliminate cash refunds and instead offer in-store credit or gift receipts to avoid inadvertently laundering money for criminals through your store.
• Update your return policies to include safeguards for your business whilst adhering to the consumer protection act.

What are the causes of fraud?

There are many reasons for individuals to commit fraud, but it primarily boils down to two simple things; pressure or opportunity. Scammers use perceived pressure or opportunity to scam a business or consumer with ideations of losing their job, getting into trouble, promises of wealth or potential missed opportunities, all demanding instant action.

The bottom line

With the threat of fraud ever present, it is vital business owners take the necessary steps to safeguarding their business. We hope the tips help you rethink your business security strategy and perhaps give you clarity on how consumers can undermine your business operations.

However, if you need help going the extra mile in verifying new customers or potential suppliers, contact MarisIT. We can assist you in identifying and assessing fraud, detecting and responding to fraud attempts, and verifying identities – all of which work together to reduce exposure to risk and loss.