Fraud is defined as ‘abuse of position, or false representation, or prejudicing someone’s rights for personal gain’. Put simply, fraud is an act of deception intended for personal gain or to cause a loss to another party.
Where it is considered as a criminal offence is where it can include:
• deception whereby someone knowingly makes false representation
• failure to disclose information
• abuse a position
However, this is very much the simple view. In reality fraud has many faces and many facets covering everything, in the law, from corporate fraud, individual fraud, charity fraud to gambling fraud and many and many more.
The Serious Fraud Office (SFO) offers a very good Taxonomy of Fraud online that outlines all that is meant by fraud.
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For the purposes of distilling this for small business owners, we are going to focus on the main types of fraud that are most likely to impact your business.
Card fraud
This is the misuse or use of compromised card and card account information to defraud both the real card owner and the business.
This is often found in card not present frauds over the phone and the web but can also cover issues around identity theft and even PIN cloning. Covers all cards including debit and credit cards and loyalty cards.
Facilities take over fraud
This is where someone gains control of someone else’s account and fraudulently uses it. Now, this kind of fraud can have two impacts on a small business. Firstly, your business can be the victim of someone hacking a customer and then buying things from you with this hacked account.
More seriously, you may well have your account hacked and your money spent. This sort of scam is most likely to occur with online banking.
Application Fraud
This is when someone uses fake or stolen information to set up an account or gain use of a card of other payment tools. This can impact your business through that falsely set up card being used to buy goods from you against no balance. This one is very hard to spot until it is too late.
Fake invoice and cheque overpayment fraud
Cheque overpayment fraud is where a supplier – usually bogus, but not always – or a customer over pay for goods with a fake cheque. The vendor then reimburses the payee for the overpayment before discovering that the original cheque is void.
With the demise of cheques, this scam has shifte to the realms of fake over-invoicing, which relies on invoicing for goods not paid for. Harder to pull off, but a risk nonetheless – although this tends to work better on large companies.
Advanced fee frauds
Advance fee fraud is when fraudsters target victims to make advance or upfront payments for goods, services and/or financial gains that do not materialise.
Ironically, one of the biggest business to business manifestations of this fraud is being charged up front for fraud recovery services which are fraudulent.
Long and short firm fraud
This is when an apparently legitimate business is set up with the intention of defrauding its suppliers and customers.
This can be after a company has spent time building up an apparent good reputation and credit history (long form fraud) or has only been in operation for a short time (short firm fraud). The later is, says the SFO, often internet related.
Insolvency and bankruptcy fraud
This usually relates to companies trading when they are on the brink of going under, or when they or their owners have gone under but have set up a new company with no liability for what has gone before.
You as a victim of this, will find that to all intents and purposes the same company has been set up as or just after the business you have been dealing with has gone under.
Domain name scams
Here someone purporting to be from a domain name registration company calling up your company – or emailing – to inform you that a third party is interested in buying your domain name and that they have rights to it unless you pay up.
Often using high pressure sales techniques, these fraudsters can often extract quite large sums very quickly over the phone.
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