What is CEO fraud?CEO fraud involves the impersonation of a senior company executive in order to divert payments for goods and services into a fraudulent bank account. Fraudsters will typically target a company?s finance department, either via email or over the phone. As detailed in the 2017 Annual Fraud Indicator, CEO fraud is an increasingly prominent type of procurement fraud. As the procurement of goods and services can represent a high proportion of a firm?s expenditure ? often involving numerous individuals across different departments ? the risk of fraudulent activity is high. According to the report, procurement fraud costs UK businesses ?121.4bn every year, and with a reported 2,370 per cent increase between January 2015 and December 2016 alone, CEO fraud is gaining notoriety. Jim Gee, head of forensics and counter fraud services team at Crowe Clark Whitehill and author of the report, offered Business Advice readers a further explanation of this growing threat to small firms. ?Fraud occurs in every business irrespective of the sector or type. The question is not whether fraud is an issue, it is what type of fraud and how much is being lost,? Gee explained. ?CEO fraud has gained prominence over the last 18 months, cropping up repeatedly as an issue that affects small businesses. Fraudsters impersonating CEOs can be very convincing, hence why this type of approach is so effective.?
CEO fraud in actionAccording to crime agency Action Fraud, the largest reported amount of money ever transferred by an employee to a fraudster was ?18.5m. The company, a global brand of healthcare products, remained anonymous. However, it emerged that a man impersonating a senior staff member phoned a financial controller in the firm?s Scotland office and requested funds to be transferred to accounts in Hong Kong, China and Tunisia. The employee was so duped that the transaction occurred despite several phone calls and emails occurring. Outside of this extreme case, the average amount acquired by fraudsters via CEO fraud is believed to be around ?35,000. __________________________________________________________________________________
Business fraud stories from two burned small businesses With new research suggesting business fraud awareness is stagnating, two small company owners share their experiences of being stung by swindlers. __________________________________________________________________________________
Typical tactics?The fraudsters perpetrating CEO fraud are often sophisticated criminals rather than amateurs trying their luck,? Gee noted. ?They may have targeted the business over months, building up a picture of who works in the business, reporting lines and the individuals responsible for authorising payments.?
Key business fraud stats? 25 per cent ? proportion of small firms hit every year
? ?18.9bn ? losses to small firms each year
? 36 per cent ? amount which don?t know who to call in event of invoice fraud
? 47 per cent ? amount which have not made any changes to prevent fraud
How to identify CEO fraudWith the lethal threat facing small firms now established, Dr Markus Jakobsson, chief scientist at cyber security firm Agari, outlined three potential warning signs that could save you from falling victim.
Consider the sender
Look at the email address
How can I prevent CEO fraud?Gaining a full awareness of the warning signs is the first step in preventing CEO fraud. To ensure the strongest defence, Dr Jakobsson advised business owners to put the right security software in place and look at internal processes, such as staff awareness. Meanwhile, Gee urged all business owners to prepare to be targeted amid the UK?s fraud ?epidemic?. ?To reduce vulnerability to CEO fraud, small business owners should put time aside to consider their fraud vulnerabilities, who in the company is responsible for countering fraud on an on-going basis, and whether there is sufficient expertise within the organisation to adequately protect the business,? he advised. ?Spending on professional advice may seem like a luxury for many businesses, but such spending should be considered an investment compared to the potential financial, legal and reputational costs associated with fraud.?? If you?ve been a victim of fraud then Business Advice would like to hear your story. Please get in touch by emailing us on email@example.com. The story of a small business defrauded out of ?7,000 ? and the lessons learned
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