Liability & Indemnity

Which sectors are most vulnerable to small business fraud?

Business Advice | 13 April 2017 | 7 years ago

fraud
Businesses need to be aware of the growing number of fraudster methods?
Here, managing director atbusiness intelligence firm?Accura, Jim Wadsworth, reveals some common types of small business fraud, and the sectors most at risk.

The rise of both consumer and small business fraud has been well documented, and recent figures from Action Fraud reflect the sheer scale of the loss to UK economy, at 10.9bn between 2015 and 2016.

Business fraud plays a big part in this. From invoice and mandate fraud, to CEO fraud, criminals can infiltrate small business processes with relative ease if company owners are not looking out for the right signs.

For many years, fraud has been the thing that happened to a friend of a friend? running their small business. But, according to new research from global payment insights firm Accura, the victim is more likely than ever to be your business, as the incidents amongst small businesses climb and awareness among small business operators continues to be low.

For example, 73 per cent of small businesses in the manufacturing sector said that they were unaware of invoice, CEO or mandate fraud. This rises to 75 per cent in the mining and quarrying sectors. On the whole, professional and service sectors are more aware than most of the modern-day threat of fraudulent activity.

What is the Threat??

There are many different types of small business fraud, here are some of the most common.

Mandate fraud

When someone gets you to change a direct debit, standing order or bank transfermandate, by purporting to be an organisation you make regular payments to a subscription or membership organisation, or your business supplier, for example.

CEO fraud

This typically starts with an email being sent from a fraudster to a member of staff in a company’s finance department.

The member of staff will be told by the fraudster, who is purporting to be a company director or CEO, that they need to quickly transfer money to a certain bank account for a specific reason.

The request looks legitimate so the member of staff follows the instruction, only to find that the money has actually gone to a fraudster.

Invoice fraud

Happens when a company or organisation is tricked into changing bank account payee details for payment of a seemingly legitimate invoice.

Fraudsters pose as regular or known suppliers to the company or organisation and will make a formal request for bank account details to be changed.

Who is more susceptible?

The transport and storage sector, manufacturing, mining and quarrying are most likely to experience CEO, mandate or invoice redirection fraud, or they know someone in their sector who has. Here are ten small business sectors that have been targeted more frequently by fraud.

(1) Transport and storage

(2) Mining and quarrying

(3) Utility service companies

(4) Manufacturing general

(5) Water/sewer/waste management

(6) Communication companies

(7) Finance & insurance

(8) Motor trade

(9) Professional, science & technical businesses

(10) Construction

Why?

The sectors most prone to small business fraud share some common traits. SME sectors where there are multi-tiered entities, frequent employee turnover, complex project finances, a high level of subcontracting and a large amount of invoice traffic are more susceptible to fraud because it is easier for the criminal to infiltrate the organisation especially if proper processes are not in place. In addition, the new types of fraud go against the fundamental nature of business, which undermines trust.

Many companies across a wide variety of sectors have been built on phone conversations, handshakes and face-to-face agreements between decision makers.

With increased digitisation in the business world from emailing invoices to making payments online, the playing field has changed, and with it comes a new style of criminal that prays on deception and human nature.

This is tough for many small businesses who are unused to targeted, professional deceit. For many, it will feel wrong? to implement processes that seem to go against the foundation of trust on which the business was built.

Continue reading to find out how you can protect your small business from the various types of fraud

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