Fighting fraud
Corporate ID theft and fraud are becoming increasingly common, with fraudulent business transactions having significant detrimental impacts on businesses around the globe. The Australian Institute of Criminology estimates that corporate fraud costs the Australian economy approximately $3.5 billion each year, making it one of the most expensive categories of crime in the country.

Victims of corporate fraud face financial and reputation damage. In many cases the value of the bad debt write-off equates to tens of thousands of dollars. The reputation damage is more difficult to evaluate as it does not easily translate into a dollar figure however it often results in lost customers and impedes future business opportunities due to perceived security risks.

Indirectly all organisations are impacted by the rise and rise of corporate fraud as insurance premiums increase to account for the continually escalating risk and businesses are forced to hike their prices in an attempt to reduce the impact of bad debt loss on the bottom line.

Mitigating fraud risk is a relatively simple process, particularly for organisations that already have risk mitigation systems in place - it could be as simple as adding your own company to your alerts list so you can be notified of any changes to your company details.

The four most common forms of corporate fraud are:

  • Company identity fraud: this occurs when your business details (i.e. address and phone number) are changed and used to order goods. The fraudster will accept delivery of the goods at the changed address and move on without paying for the supplies.
  • Long firm fraud: this occurs when an apparently legitimate business, which has been operating for an extended period of time, places a large order for goods and promptly disappears without payment. The goods will be on-sold from various trading locations.
  • Phoenix companies: are businesses that are set up by a director/s and are wound up owing substantial amount of money. The director/s then moves on to create another company, having no responsibility to repay the debts from their previous operation.
  • Company hijacking: this occurs when fraudsters invest in a business and gradually replace its board members with members from their own crime syndicate until they have complete control of the board.

Preventing fraud

Ongoing monitoring (of your own business and your clients businesses) combined with thorough credit checks conducted at the outset of every customer relationship is the best way to prevent corporate fraud. Understanding who you are dealing with before you extend credit and being immediately alerted to any changes in your details or the financial situation of your customers enables your business to make critical and profitable decisions in real-time.

Other simple steps your business can take to help protect your business against the devastating effects of fraud are:

New customers:

  • Investigate the company's trading record, in particular look for any connections with companies that have failed
  • Check the individual credit histories of key personnel within the business
  • Check previous directorships to determine if company executives have been on the board of failed companies

Existing customers:

  • Be aware of your customers ordering habits and question any sudden changes in ordering behaviour
  • Refresh your data regularly, particularly if a customer places a large order. Ensure that significant changes have not taken place within the company in a relatively short period of time 

Changes occur all the time and businesses must be alerted to the changes taking place within their clients' business'. Monitoring systems will act as a good safeguard against company identity fraud. 

Want to know more about protecting yourself against fraud? Download D&B's Protecting yourself against financial fraud whitepaper

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