Be aware of business fraud this holiday season

Nov 22, 2016
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As a nation of savvy consumers, we know the holiday season brings with it an increased risk of fraud and scams. But, that’s only half the story. While this is a risky season for consumers, it’s just as dangerous for businesses too.

Fraud directed at businesses is very common around the holiday season and can be a devastating blow to the unprepared. Many small businesses rely on the seasonal bump in sales as a major source of profit to keep them going for the year, and fraud can dangerously undermine those crucial funds.

That’s why it’s so important to know the most common (and costly) types of fraud to watch out for this holiday season and how to best prevent them.

Invoice hustling and “whaling”

Scam invoices are one of the oldest tricks in the book, but this dirty scheme has seen new life in the modern computer age. The basic gist of the scam is that you receive a legitimate looking invoice requesting payment for a product or service you never actually requested or purchased. Often times these phony bills will masquerade as a real business (one you may already have regular dealings with) but change the actual payee. The goal here is to try and take advantage of the seasonal rush and accounting crunch and hope you pay the bill without looking too closely at the details.

The new online twist of this old scam is what is referred to as “whaling.” While invoice scams are generally quick cash-grabs that aim to slip through the cracks in accounts payable by seeming innocuous, whaling is on the opposite end of the spectrum. It directly targets an executive or upper management position with a phony email to “put a rush” on an “urgent” payment. These scams go for larger payouts and prey on busy and harried management types to yield to pressure faster than their common sense. The phoney email can be done under the guise of an important client, a trusted colleague, or boss higher up the chain, whatever will work best to disarm and pressure the target.

The best way to defend against these scams is good internal policy and diligence. Always prioritize accuracy over speed when it comes to signing cheques and handing over money. A good 3-way matching system (where records of purchases, delivery, and invoices are compared) and having a designated purchasing agent who is responsible for all vendor transactions can help limit risk and provide safeguards against phoney bills.

Return fraud

Return fraud is a highlight of the holiday season and retail stores need to be aware of all the different ways it can be performed. At it’s core, return fraud is all about leveraging a business’ return policy against itself, swapping goods and conning a store into shortchanging itself somehow, but the variations on this theme are numerous.

The first and most obvious return fraud scheme of the holiday season is “renters,” customers who purchase an item with the intent of taking it back to the store once they have had their use from it. The classic example is the high-priced dress bought to wear for exactly one evening and returned the next day. Making sure all garments have visible tags (that once removed invalidate a return) and a good store-credit return policy (no cash) are two excellent ways to discourage this behaviour.

Receipt bluffs is another common tactic. This kind of scam uses a legitimate looking receipt (it may be picked out of the trash, stolen, or otherwise forged) and then going into a store, bold as brass, picking the item up off the shelf and going to customer service for a “refund” on it. You even get gutsy crooks who will attempt to “double up” on a purchase by buying the item legitimately, then trying to cash in a refund on the same type of item, only plucked from inside the store.

The best defense against this kind of fraud is employee vigilance. Make sure every employee knows about this scam and is watching for it. Door greeters and front-line staff should be trained to notice if customers are carrying anything on their way in, and customer service desk staff should always ask for proof of ID and copy down the information on every return.

Another variant on the scam is to try and return one product as something else. This involves finding two similar looking products, and trying to cash a refund in on the more expensive one while actually returning the cheaper item. This “flipping” is especially prevalent in consumer electronics where items can often look very similar, yet carry wildly different prices (MP3 players, headphones, cameras, etc).

Employee education is important here. Make sure your staff is aware of this type of scam and on the look-out for it. Make sure they know where to look for serial numbers and confirm the exact product before honouring a return. If there is ever any doubt, have a department specialist come and take a look.

Internal fraud

Sadly, the holiday season is also the peak time for internal fraud and threats within your own business. The holiday season can put added financial strain on some while the hectic rush of the season creates a larger opening than usual for graft. Nobody likes to suspect their employees and co-workers, but it is a possibility that needs to be faced head on.

The holiday season can often mean taking on temporary staff to help with the rush. While most temps are totally fine and trustworthy, there is always the possibility that someone with a lower commitment to the business would be more tempted to rip it off. While your time is precious, always take the time to run proper background checks on temporary employees and make sure everyone is aware of and follows proper procedures (and knows to point it out if they see someone doing otherwise).

Be aware of all the types of internal fraud that your business is at risk from. While employees nipping from the till or trying to pass bad invoices of their own are obvious risks, think about other ways your business may be vulnerable. Access to sensitive information is a major concern and should be treated as one. Whether an employee intentionally misuses internal data to commit fraud on customers, clients, or the business, or accidentally leaks info through negligence (like leaving a laptop on a train, or being sloppy with their security habits), data loss can represent a huge liability for your business. Control who has access to what and train staff on proper security measures.

The holidays are a busy and stressful time for business owners as it is. You don’t want to have to deal with a fraud issue in the middle of it as well. Stay vigilant, enforce strong internal policies, and make sure your staff is on the look-out and prepared to deal with scam attempts, and you can keep your holiday season a happy one!


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