Franchisees at risk of false billing scams
This article appears in the September/October 2013 issue of Business Franchise Australia & New Zealand
False billing, overpayment and email hacking — scams are hitting franchisees and small business owners in more ways than one.
New research conducted by Curtin University found that one in eight small businesses surveyed lost between $100 and $10,000. It also found that scams hit more than just the hip pocket with researchers estimating that businesses can spend up to 100 hours dealing with the consequences.
In releasing the findings, Dr Paull Weber said the natural tendencies of entrepreneurs means that some small business people think an offer is probably too good to miss rather than the obvious too good to be true.
Franchise operators and small business owners are also busy people who often have fewer resources than large businesses, which in some cases can make them easy targets for scams. False billing scams are a classic example.
The ACCC often hears from managers of small firms who have been tricked into paying for unwanted or unordered advertising, stationery or other services. The scam involves receiving a subscription form disguised as an invoice or a late notice. The
paperwork looks like every other bill in the pile, and the scammer hopes that it is processed without a second thought. In some cases non-payment might be followed up with aggressive legal threats.
In 2012, more than 2,500 people reported false billing scams to the ACCC, a welcome decrease of seven per cent on the previous year. Likewise, the total reported losses fell to around $560,000, a drop of close to eight per cent. However, there’s a sting in the tail with false billing scams increasing their strike rate. The number of people reporting a loss increased to 19 per cent. The Curtin University study also found that small businesses lost up to 20 hours in dealing with false billing scams.
The ACCC is alive to false billing conduct and we have taken action where we can to protect small firms. In March, Adepto Publications Pty Ltd and two individuals were penalised a total of $750,000 by the Federal Court after they admitted to false
and misleading representations. Adepto demanded small businesses pay for unwanted and unordered advertising in publications which it falsely claimed were affiliated with charities.
In a separate case, the ACCC took action against three publishing companies which contacted small businesses and told them that they had already paid for, or agreed to, advertising in one of the companies’ magazines, when in fact they had not. In September 2012, the Federal Court ordered the publishing companies to pay penalties totalling $400,000, and the companies’ director to pay $100,000 after they admitted to misleading and deceptive conduct, harassment and coercion, and unconscionable conduct.
Across the spectrum of police and consumer protection agencies there is agreement that scams are increasingly sophisticated. A recent scam reported to the ACCC is a case in point: a local business placed an order with its usual overseas supplier. The business later got an email requesting that payment be sent to an alternative account, as the regular one was subject to an audit. The money was sent. The local business then received the shipment and the supplier said ‘where’s the payment?’ What appears to have happened is that a scammer has intervened in the emails, effectively hijacking the transaction, pocketing the money – and disappearing, beyond the reach of Australian authorities. The reported loss was a bit over half a million dollars.
The financial costs of this type of scam can be devastating, but the damage done to personal attitudes and business relationships is just as concerning. The Curtin University study discovered that those who have recently lost money to a scam are losing trust in others. This finding is most disturbing, as strong relationships are an essential ingredient for franchising and running a business.
The ACCC’s scam activity report and the Curtin research report both reached the same conclusion: Scammers go fishing where there are fish to catch—that means online. In June this year, Roy Morgan Research declared that internet shopping is the new Australian norm. It reported that, for the first time, Australians who don’t buy online are in the minority.
Last year over 8,000 people reported online shopping and auction scams to the ACCC, an increase of 65 per cent with more than $4 million reported lost. While the increase is a sign of the times with more people buying and selling online, it also reflects the reality that scammers are shopping online too – for victims. The Curtin survey also found that small businesses transacting and communicating online reported the highest prevalence of scams.
The ACCC’s complaint data reveals that online sellers are often targeted by overpayment scams. Imagine trying to move an expensive item without luck for several months and then a generous offer comes along. The buyer happens to be based overseas on some sort of posting and is happy to purchase the product unseen but ‘accidently’ pays above and beyond the agreed amount. “No trouble, just a minor mix up” the buyer says, while asking that the excess amount be refunded by a money
transfer. The seller doesn’t want to lose the sale so the refund is paid. However, in the meantime the buyer’s original cheque or payment bounces. The seller is left out of pocket. The refund sent is lost and not recoverable.
Fortunately, there are some encouraging signs in terms of small businesses guarding against scams. The Curtin survey provides a rare glimpse behind the scenes at the different fraud prevention measures small business owners are adopting. Simple steps like searching company names and checking for valid street addresses on Google maps are being used. Small businesses are also investing in experienced staff with the right level of industry knowledge to spot requests and processes which don’t fit in with normal business patterns.
Consistent with the ACCC’s advice, the survey also confirmed that many small businesses have moved to put in place account payment procedures to reduce the risk of falling victim. One small business suggested using a separate debit card with a
small available balance for online purchases. Other sage advice included having one person responsible for approving new expenditures and refusing advance payment requests. Prevention is always better than cure.
Dr Michael Schaper is Deputy Chairman of the Australian Competition and Consumer Commission.
The ACCC’s targeting scams report is available at www.accc.gov.au. For more information on how to protect yourself from scams, visit www.scamwatch.gov.au or follow us on twitter@scamwatch_gov. The Curtin University small business scams report is available at http://business.curtin.edu.au/news/index.cfm/researchanalysis-scams-on-small-business-owners.
ACCC tips on guarding against scams
• Keep your filing and accounting systems well organised. This will make it easier for you to detect bogus accounts and invoices.
• Never provide personal information and banking details to anybody you don’t know and trust.
• Make sure the business billing you is the one you normally deal with and ask for the name of the person you are speaking to and who they represent.
• Never give out any information about your business unless you know what that information will be used for.
• Do not agree to offers or deals straight away. Always ask for an offer in writing and consider getting independent advice if the deal involves money, time or a longterm commitment.
• Ensure that you have clear procedures for verifying, paying and managing accounts and invoices.