Scammers are getting more sophisticated and are constantly evolving to avoid detection. And, within small businesses themselves, there are internal issues that may lead to a higher risk of further external scams. For example, small- and mid-sized businesses (SMBs), who often lack a proper system of checks and balances, are especially appealing to fraudsters. In a report released in April 2018 by the Association of Certified Fraud Examiners, scams within businesses with fewer than 100 employees, led to the following:
- Median loses of $850,000 — this was due to fraud committed by an owner or executive within the small business, further emphasizing the need for checks and balances.
- Check and payment tampering was nearly three times more likely at a small business than a larger one (22% to 8%). Other frauds much more common at small businesses included skimming (20% vs. 8%) and payroll (13% to 5%).
When an external fraudster pounces on one of these businesses, it can further lead to the divulgence of Personally Identifiable Information (PII), which could equate to identity theft, and of course, financial damages. As a result, employees may lose their jobs and there could be a negative impact on the company’s business credit score, which is used to define a business’ financial health and lending abilities.
Let’s take a look at three scams that can hit a small business from an external source.
We all take pride in our business and enjoy being recognized for our hard work. Scammers have been known to take advantage of this pride by targeting businesses through emails and calls claiming the organization has been nominated for and won an award.
Along with the honor, the phony organization is also promising you a plaque or a polished trophy for you to display. The catch is that your memorabilia will cost you between $149 to $229.
In Brookhaven, Mississippi, multiple businesses reported they had won the “Brookhaven Award Program.” They were given a code to enter at the contest’s website to learn more. Once logged in, the website solely consisted of a sales page offering “winning” plaques for sale. In these cases, it’s critical do additional research, look at previous winner circles, and see who the “sponsor” of the award program is so that you can validate their credibility.
Avoiding vanity award scams
Look at previous “winners” and research award sponsor(s).
Perform a web search to see if a press release has ever been issued by a previous “winner.”
Ask to see the award nomination criteria and the selection process.
Inquire about the judging panel (and dig into who the judges are!).
Understand the payment terms and whether you are still deemed a “winner” if you don’t pay.
Scammers will pose as your local utility supplier demanding an immediate payment of your delinquent bill or else your business will be cut off within hours. Their ultimatum gets people’s attention when they are threatened with the possibility of not being able to conduct business, or fear that their credit will be damaged by not paying on time.
Companies targeted by these utility scams claim a loss ranging from $500 to $5000. Art Allen, a Toyota dealership owner in Bastrop, LA received a call regarding his past due electric bill. They claimed his electric bill would be turned off unless he paid $2,000 immediately via Green Dot MoneyPak cards. Similarly, in January of 2018, a Brookline, Massachusetts, company was asked by a scammer claiming to be Eversource over the phone, to pay $1,000 in a prepaid card if he wanted to keep the electricity on at his shop.
Be wary if this is the first time you are hearing about your delinquent payment. Companies have strict regulations when it comes to shutting off utilities and are required to send one or more disconnection notices through snail mail. Utility companies also offer their customers several different payment options including online, by phone, by mail, or in person.
Avoiding delinquent utilities scams
Never trust a phone call or email demanding payment via a prepaid debit card.
Ask the person on the other line for specific information about your business, such as the account number.
Ask to call the person back and instead contact your utility company using the number on your paper bill or on the company’s website.
Office supply scams
It can be easy to approve and pay for the bills you are accustomed to seeing every month. Scammers may try and step in to pose as your supplier. It may start with a phone call. The con artist will act as your trusted merchant or a past vendor verifying a purchase or offering a free gift or sample to get the employee’s contact information. They later use this information to create a fake invoice for the items they claimed were free. Companies often pay for these invoices without giving it too much thought.
Liberty Supply Company, an office supply business in Gainesville, Texas, was charged by the FTC after targeting churches, schools, and small businesses. They offered pens, paper clips, and other office supplies at low prices and then sent their victims a steep invoice. Liberty then aggressively sought payment for the unordered items.
Avoid falling for office supply scams
Establish purchasing responsibility by limiting the number of employees who are authorized to place orders or pay invoices.
Create and review purchasing procedures to prevent an unexpected call, email, or invoice from triggering an expensive mistake.
Check all invoices closely. Make sure all supplies on the invoice were ordered and delivered.
Keep in mind that if you receive merchandise you didn’t order, you are not responsible to pay for it.
Tips and resources to protect your business from scams
In July, the FTC partnered with eight state Attorney General offices, the New York Division of the U.S. Postal Inspection Service, two U.S. Attorneys’ Offices and the Better Business Bureau to create Operation Main Street. The initiative targets operations that seek to scam small businesses as well as provide informational resources to help small businesses protect themselves from fraud. While this is a step in the right direction, there’s no question that scammers will continue their schemes.
Small businesses have endless responsibilities to keep everything running smoothly. Watching for scammers may not be a priority, but with the multitude of ways fraudsters can target us, it’s important to stay vigilant. Follow these tips to protect yourself and your employees.
- Train employees | Educating your organization of prevalent scams is the first step in protecting against threats to your business.
- Get vigilant | Have a checks and balances system in place to ensure nothing suspicious is slipping through the cracks.
- Don’t divulge | Remind employees to never give out your banking information by email or phone.
- Get help | File a claim with the FTC if you believe your company has been scammed.
- Stay informed! | Keep up to date on the latest scams