In 2021, consumers lost more than $5.8 billion to fraud in the US, an increase of 70% from the year before, according to CNBC. On the other side of the coin, businesses are also suffering as more online customers than ever before is leading to increased temptation for criminals and a rise in organized crime. So what are the different kinds of fraud, and how can companies fight back?
Employee Fraud vs Customer Fraud
Various different types of fraud can generally be categorized into either employee fraud or customer fraud. But what are they, and what are the differences?
Employee fraud is when a company staff member knowingly steals, lies, deceives, or defrauds the company with the intention of profiting in some way. In the United States, employee fraud is believed to be responsible for as much as one-third of all corporate insolvencies, with the average amount being lost by medium-sized businesses being $200,000 per incident, totaling billions globally every year. Employee fraud includes stealing money through skimming, hiring fake vendors, stealing things from inventory, faking a work accident, and claiming benefits.
Customer fraud is when a customer commits fraud against a company. The entity will suffer a monetary loss by means of unfair, deceptive, or fraudulent business practices or through the customer presenting themselves illegally or incorrectly. It is not to be confused with consumer fraud, which is where a business behaves illegally toward a customer or group of customers to scam them and make a financial profit, which has been in the news recently as covered here on Times News Network. Examples of customer fraud could be payments, cheques, identity, or chargeback fraud, to name just a few.
How are companies fighting back?
Whether it is employee fraud or customer fraud, companies are fighting back. Of course, regulators are also cracking down on the issue of fraud, enforcing new laws and frameworks across multiple industries. But business entities also must protect themselves.
One way of doing so is using cutting-edge tools that harness technology to detect, prevent, and combat fraud. One such example is SEON’s help in fraud analytics through its various data analytics solutions. You can engage dashboards for different departments to give you an aggregated overview of activities, simplifying supervision and audits. You can also engage your data science team to use tools provided to them and also use artificial intelligence to apply pre-defined rules on what seems risky. A combination of all of these can really help reduce the level of risk a company faces.
But above all, it is essential to stay on top of current developments and changes, as well as ensure your software and digital tools are continually patched and updated.
This type of fraud is one of the most prevalent. According to Investopedia, it is where a criminal uses the identity and personal information of someone else, without their permission, to commit a crime or gain monetary benefit from the victim or a third party. It can include taking out loans in their name, getting a credit card, accessing their payments accounts, gaining access to secure areas, or dealing with governments and institutions.
It is estimated that at least 20% of the population will be exposed to identity fraud with personal information changing hands on the dark web in return for payment. Also, around $52 billion was stolen from Americans in 2021, which is set to increase yearly.
Payroll fraud is when an employee steals money from a business through the payroll system, and it is one of the most prevalent kinds of fraud in the business world. Typically, payroll fraud is committed by an employee who wants to gain access to money they are not entitled to as a part of their remuneration. It can include misclassifying employees, adding extra hours, creating ghost employees, or faking or exaggerating an injury at work to claim workers’ compensation.
It is estimated that payroll fraud occurs in up to 15% of businesses according to Ascentis, with an average fraud of $48,000 spanning three years. It is a huge threat to businesses as it can be challenging to detect. For example, in the case of inflating hours worked, the inflation can take the form of an hour or half an hour here and there, but spread over the years it accounts for a significant amount of money. Furthermore, checking hours worked can be laborious and difficult if electronic check-in and check-out systems are not used.
Defined simply, payments fraud is when a third party tricks someone into revealing their payment information or obtains it illegally and then uses it to steal their money or make transactions for their benefit. This kind of fraud occurs online via payment methods where the account owner is not present in person. The most common example is where a criminal will steal someone’s property, money, or data to use for themselves.
As the internet continues to grow, along with increased spending online, the lure for criminals increases as well. As regulators and payment companies find ways to stop fraudsters, new methods develop to circumvent them. Therefore it is a constant state of catch-up. Examples of common payments fraud include sending cardholders to fake websites that imitate their banks or stealing someone’s credit card details to make unauthorized purchases online. Other kinds include phishing, card testing, denial of receiving a product, and false returns of items.
It is a digital landscape that is constantly shifting; it is essential to keep your finger on the pulse. This includes a full understanding of all the risks that could impact you and your customers when they engage with your platform. Using tools such as the ones above, combined with staff training and awareness, can go a long way in solving many issues and preventing others before they happen. But when it comes to fraud, you must never drop the ball because if you do, there will be someone there looking to take advantage of the situation.