Fraud comes in many sizes, flavors, and colors.
It can take place within a company. One form is payroll fraud, in which an employee overreports overtime hours and collects the extra money. Another is doublecheck fraud.
Here an accountant writes out a check to a vendor and simultaneously writes a check to him or herself, giving it the same code. Then there’s overordering fraud: an employee orders too many office supplies, returns the extra amount, and keeps the refund.
Yet another is friendship fraud. In this case, an employer hires someone—a friend, a friend of a friend, or even a family member—and places too much trust in the individual. This person may, for example, siphon off payroll taxes instead of paying the government.
These problems can be managed in large part by accountability: measuring results, cross-checking, and ensuring everyone knows they’re being watched. There’s also a small matter of fairness: employees who believe they are being treated unfairly (particularly by being underpaid) are far more likely to use unorthodox and illegal means to get what they feel is their due.
Business to Business
The other main kind of fraud is business-to-business (B2B). The credit rating firm Experian estimates that some $50 billion a year is lost as a result of fraud, though some analysts believe that figure is too low.
Citing a recent LinkedIn article, Mark A. Amendola, a litigation attorney with the firm of Martyn & Associates BB #:145864 in Cleveland, OH, says, “About 20 percent of all online B2B inquiries are fraud attempts, and about 75 percent of all businesses have lost money due to fraud.”
Here are some of the more common types of B2B fraud.
Commercial bust-outs: A company or an individual establishes many lines of credit and pays conscientiously to build up a good credit history. Consequently, credit limits are increased. At this point, all credit is maxed out with no intention to repay. Creditors have to write off the loss.
Account takeovers are like personal identity theft, except with a stolen business identity. The scammer intercepts and usurps the victim’s credit information to place unauthorized orders.
Shell companies are set up solely for the purpose of committing B2B fraud, including money laundering. One way of spotting this kind of fraud is seeing if the company has any receivables listed in the credit-check phase. If not, there’s a good chance it’s a shell company.
Another variant: a case recently came to Blue Book’s attention in which a buyer—ostensibly from a reputable company—placed a $100,000 order and didn’t pay. What should have tipped the seller off? The buyer had a Gmail email address rather than one from the company he was supposedly representing. Secondly, the buyer requested shipment to another address. In this version, the scammer works by pretending to be from a reputable firm.
Never paying (or no payment) is when a company opens an account (often through material misrepresentation) without the slightest intention of making a payment. Rick Fryman, president and COO of TC Marketing, Inc. BB #:126889 in Napoleon, OH, observes that much of the fraud he has seen over the past five years consists of “delinquent/non-payment companies that go out of business.”
This is a multi-part feature adapted from a Credit & Finance article in the May/June 2020 issue of Produce Blueprints.
