Corporate fraud: A growing issue

Henrica Westhoeve
Oct. 10, 2022 - Reading time 7 minutes

B2B fraud has increased dramatically, with fraudsters cleverly taking advantage of various circumstances created by the pandemic. B2B fraud has the potential to cripple businesses, resulting in losses that can run into the millions. But knowledge is power; in this article, we discuss the different ways fraud is used. In a second article, we highlight the latest developments, and show how to stay well protected as an organization against the most common ways of fraud.

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In the aftermath of COVID-19, the risk of commercial fraud became much greater as companies, financial systems and service providers of all types came under extreme pressure to respond and adapt to the crisis. A recent report by the Association of Certified Fraud Examiners found that 51% of the organizations that participated in the survey have detected more fraud since the start of the pandemic. 71% of respondents expect the amount of fraud affecting their organizations to increase in the coming year.

Increasing reports of fraud

What explains businesses' increased vulnerability to fraud? One key factor: during the pandemic, many businesses had to continue their operations digitally rather than physically. They had to, because of the dramatic change in customer buying behavior, with transactions taking place largely online. The other major factor was the shift to remote work. This revealed new risks: data vulnerability, device security and file confidentiality. Many employees worked on unsecured networks and personal computers that could be more easily hacked by fraudsters. Less oversight and decentralization of tasks - such as generating payments - also made it more difficult to detect cases of fraud.

Fraud is expected to continue to increase, which is why there is a need for all businesses and capital providers to have a plan to continually combat online fraud. But before you can create a plan to combat anything, you want to be sure you have a complete picture of the potential threats. What types of fraud pose a threat to businesses? And what are the red flags that organizations need to learn to recognize?

Types of business digital fraud

The list of types of fraud is endless. Here is a selection of the most common and important types of fraud.

Ghost companies

One of the most common types of fraud is the creation of companies for the sole purpose of committing fraud. These companies are a kind of hiding place for criminals to be able to hide their own identities and motives. Often money laundering plays a role here, or the business is used to be able to hide criminal types of cash flow.

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Another emerging form of fraud is business misrepresentation - defined as material misconduct and deception by fabricating, exaggerating or omitting business details. This form of fraud includes of both first-party and third-party fraud in the marketplace. Examples include exaggerating the number of employees or annual sales or fabricating or altering them.

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Never planning to pay

With many online payments, a fraudster may decide to open a new business account to order goods or services, without then paying. Sometimes these fraudsters are spotted in time, such as during the verification process or when there is a problem with a first (to) payment.

Bust-out fraude

In the "Commercial Bust-Out," a fraudster intentionally opens many credit limits and immediately overruns and uses all credits in full, only to disappear off the radar. Using available business information, digital identity and previous fraud incidents and analytical indicators, a fraudster can be detected, or a bust-out can be prevented. Some fraudulent companies pay bills on time for months, sometimes even years, before starting a bust-out fraud.

Falsification of identity

We are familiar with identity fraud when it comes to individuals. A similar approach is used by fraudsters when it comes to business identity theft. This is where the perpetrator poses as the business owner or representative of a legitimate company. Using the "borrowed" credentials of a legitimate company, a can engage a fraudster in another company in ways that ultimately reduce cash flow, cause problems with creditors and suppliers, and even tarnish the company's reputation. To accomplish this, fraudsters may try to open trading accounts in an existing company's name. They may also use fake documents in the name of a legitimate company or use names of board members. Business e-mail domains similar to those of a legitimate company are also frequently used in this type of fraud to conduct transactions.

Take over

Fraudsters can get to accounts of companies through malware, phishing or data breaches. This allows them to adjust settings and rearrange cash flows to route to other accounts without being immediately detected.

As can be read, there are many ways how shady companies can take money and data from legitimate businesses. How do you weaponize the organization against this? What are questions to ask before doing business with a company? Read all about that in our next blog.


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