Fraud is a clear and present threat to UK businesses but knowledge is power. Coface’s Business Information Director, Andrew Share, explains some of the steps you can take to thwart the criminals and how Coface can help.
Economic crime costs the country around £8.4bn per year but that Government estimate doesn’t truly reflect the impact felt by individual UK businesses.
In fact, the latest Economic Crime Survey shows that one in five businesses (representing approximately 206,000) experienced at least one incident of fraud in the previous three years and this is likely to be the tip of the iceberg as fraud is known to be under-reported.
Victims of corporate fraud experience a serious financial hit – the mean annual costs per business of all fraud incidents experienced was just over £16k – but there are other consequences too, such as damage to reputation and staff wellbeing. And once a business has fallen victim once, they can be regarded as easy prey and be targeted by fraudsters.
As you’d expect, Coface are fully committed to protecting customers (and ourselves) from fraudulent activity. Our international network of fraud correspondents and risk underwriters monitors and reports suspicious activity, including cross border transactions that might ordinarily get missed – click here to read how we recently thwarted an attempt by procurement fraudsters to cheat a supplier out of goods worth nearly €1m. Such incidents are reported to our UK Fraud Committee which meets Quarterly to monitor the latest threats and flagged on our database of 130million companies which informs our decision-making and .
Recently, the Government has announced a clamp down on fraud through its Fraud Strategy and Economic Crime and Corporate Transparency Bill (currently in its final stages), which includes reforms to Companies House to tighten up the registration rules.
While this is good news, it’s in the interests of every business to take steps to protect themselves too in order to avoid a potentially catastrophic loss. Here are our top tips.
Understand the risks
It would be dangerously complacent to think anyone was immune based on size or sector but some types of business are more vulnerable to different types of fraud.
For example, Coface encounters more procurement or impersonation fraud in sectors like agriculture, fish and alcoholic beverages where goods are perishable or have a shorter lifespan and fraudsters can exploit the pressure on suppliers to shift stock before it’s too late. Unfortunately these pressures can lead to rushed decisions that opens the door to a fraud..
Whatever the nature of your business, you need to think like a fraudster so you can implement an effective anti-fraud strategy. Think about things that might leave you exposed such as how much you trade on credit, the value of the goods/services you sell, how you onboard customers etc. Finally, start a conversation about fraud with colleagues, trading partners and staff – it might prompt them to share experiences so that everyone is better informed about risk.
Look out for red flags
Fraudsters use a variety of methods to convince companies they are genuine buyers and persuade them to part with goods or provide services. Some of the tactics Coface has seen include:
- Using fake payment apps which appear to show that funds have left an account so the supplier releases goods;
- Setting up shell businesses, registered with Companies House, which use third party call answering and virtual receptionist services to give the impression they are trading.
- Impersonating a legitimate, credit-worthy company (as in our example) or resurrecting a dormant one so it appears they’ve had a presence for a number of years. Currently Companies House filing can be compromised by fraudsters filing documentation without having to evidence who they are, the Economic Crime and Corporate Transparency Bill currently being legislated is planned to implement changes to mitigate this risk. Some frauds are more sophisticated than others but the following should ring alarm bells:
- Communications with grammatical errors and spelling mistakes
- Refusal to make advanced payments
- Refusing to place a deposit on account
- Company representatives constantly unavailable or unresponsive
- Pressure for goods to be shipped urgently
- Use of screenshots instead of original documents
- A company history where reported turnover has grown quickly over a short period of time
- Little interest in negotiating on price or in the product itself
Tighten your procedures and know your customer
Although we can’t give a 100% guarantee that that you won’t be targeted by fraudsters, you can certainly make it difficult for them to succeed which should have a deterrent effect.
We recommend you implement a clear and effective anti-fraud strategy which addresses the areas where you are vulnerable. It should include rigorous and consistent operating procedures for your finance department and purchase order teams (no exceptions); staff training so everyone knows what to look out for; and a thorough onboarding policy for new credit account customers, such as face-to-face meetings and requesting proof of ID from the contact before setting up account.
For new orders, Coface recommends you:
- Review the order details (in particular to the use of English and communication style)
- Carry out due diligence eg obtain government ID and other official documentation
- Check the order data against the company registration and other business intelligence
- Check the company’s website, its creation date and whether the links work
- Check if the logo on the website matches those on the order
- Check the delivery address and the person to the goods are to be delivered to (meet them person if possible)
Most importantly, always be on your guard against an opportunity that seems too good to be true. It might be difficult if your business is under pressure but if you are in the slightest doubt stay strong and do not ship the goods without an advanced payment.
Report it to the police
Fraud is an underreported crime which can be a handicap for the authorities when it comes to bringing perpetrators to justice and taking action at a national level.
For this reason, we advise you to report incidents by contacting Action Fraud on 0300 123 2040 or online at https://actionfraud.police.uk/
Work with Coface
If you want to protect your business from fraud, Coface is a powerful ally to have in your corner.
Our global presence, resources and expertise means we’re in prime position to spot suspicious transactions when they cross our desk and we log these incidents and routinely inform customers who are at risk. We also ask customers to report concerns through CofaNet or talk to their account manager so that we can flag these across out network and protect our customers.
Above all, you can use our Business Information Services to support your anti-fraud strategy. These go far above and beyond standard credit references, drawing on the expertise of our underwriters and analysts, as well as our global database which holds real-time data from multiple sources as it becomes accessible, including financial, trading, payment, and fraud information on more than 130 million companies. It’s an effective way to evaluate businesses in the UK and overseas and make informed decisions about the trustworthiness of trading partners.
Andrew Share,
Business Information Director