Types of external business fraud

There are hundreds of different of fraud that external criminals use to steal from businesses. Some of the most common are phishing, identity fraud, return fraud, and chargeback fraud.

Welcome to the second article in our series on fraud and its prevalence in the UK. Last time we looked at the staggering scale of the UK’s fraud epidemic and why it has been able to flourish whilst remaining largely under the radar.

It is not just the sheer amount of fraud being committed that threatens business but also the fact that it comes in many different guises and utilizes many different techniques. Too may in fact to cover in just one article.

To make it easier, we are going to split the types of fraud facing businesses into two groups: external fraud and internal business fraud.

Today we are going to look at external fraud and some of the different scams criminals employ to commit it.

What is external fraud?

External fraud is any type of fraud that targets your business where the fraudster is external and not employed by you.

A key piece of information to keep in mind when considering your risk exposure is that fraudsters won’t necessarily be trying to steal money directly from your business. They may be seeking key information which would allow them to pose as you, steal customer information, steal goods, or pay for goods with stolen funds/identity.

Common types of external fraud: 

• Account fraud 
• Identity fraud
• Credit card fraud
• Phishing 
• Return fraud 
• Chargeback fraud

Account fraud

Account fraud is where a criminal tries to get access to your company’s bank accounts and subsequently steals funds. Any stolen funds will pass through a complex series of bank transactions, usually crossing international borders, which effectively makes it impossible to track the money.

Rather than steal a large and noticeable sum of money, fraudster may repeatedly syphon of smaller sums that at a cursory glance may look like a normal business transaction and go undetected for long periods of time.

Identity fraud

Businesses need to watch out for two different types of identity fraud.

Firstly, a criminal may pose as your company, usually using stolen information, and pose as you to perpetrate a scam. These scams will usually involve stealing goods by running up large amounts of credit in your name or making one large order. Whilst your company may not ultimately be liable for these debts, this can cause severe reputational damage.

Secondly, businesses are threatened by criminals posing as legitimate customers using a stolen identity; this can be as an employee of a business or consumer customer. In most cases, these items will then be sold on.

Credit card fraud

Technically a type of identity fraud, credit card fraud is so common it deserves a separate mention. A classic method of fraud, it involves using a stolen credit card or credit card details to purchase goods in someone else’s name, this can be an individual’s or business’s credit card.

The victim will usually report these transactions to their bank who will not necessarily reimburse you for the stolen items.

Phishing

Another very common form of fraud that almost everyone is familiar with. Phishing involves a criminal attempting to steal sensitive information usually by electronic means such as email, text message, or phone call. They usually imitate a trusted individual or institution to dupe their victims into giving them the information they require.

Return fraud

This is where a fraudster exploits your return policy in order to make financial gains. There are a few popular scams run by return fraudsters.

One is to attend your business in person with a stolen item you sell and attempt to return it for a refund. Usually they will claim to have lost the receipt or they may have created a forged one. This scam usually relies on the fraudster being belligerent or upset to exploit the goodwill of your staff, deflect attention away from their suspicions, and to create a situation where it is easier to just be rid of them so as not to upset other customers.

Another is for a criminal to purchase a high value product, often electronics, and obtain a defect version (usually purchased cheaply online) and then return the defective one for either a refund or a replacement. This scam can be performed by scammers attending your business in person or through e-commerce return processes.

Chargeback fraud

This is where a customer makes a purchase from your business legitimately using their credit card. They accept goods/services as usual but then dispute the charge with their cards provider in order to obtain a refund.

This affects businesses by possibly causing financial loss as the institution attempts to recover the funds, it can lead to larger card processing fees being charged, or even losing the ability to process credit card transactions.

It is not just threats from outside that threaten your business. A huge amount of fraud comes from employees defrauding their employer in what is known as internal fraud.

Next time we will look into what these threats are and how they are carried out.