Fraud avoidance is a matter of knowledge, care and process.

The one thing that struck me in over 35 years of Credit Management is the way in which any company that encounters fraud or is drawn into it, bunkers down and keeps it private; essentially, the embarrassment is just too much to take.

The result of this of course is that the extent of fraud is not formally advertised or measured and this creates a vacuum into which we all fall, never quite learning from our mistakes or those of others. Training in fraud avoidance is rarely considered or indeed available to the average IT Reseller for example.

I recall so many occasions where I encountered Resellers in difficulty as a consequence of both internal and external fraud. A common feature was new recruits with impressive sales statistics that were subsequently found to be fraudulent. Sales essentially to acknowledged clients but where delivery was to ‘mates’ or ‘acquaintances’. It’s so easy to do this for two or three months and then moving on to another employer.

Another common fraud is the false identity tactic. This involves placing an order using a known legitimate client account but requesting delivery to another location or collection of goods. On one such occasion, I was working late in the office when an order to one of our long established Resellers was rejected by order processing. It was rejected as the value was over 60K, the Reseller client already owed some 50K and the account credit line was 80K, previously enough to deal with normal run rate activity. Unusually too, the order was for IBM product the Reseller did not normally purchase and the delivery address was a known obscure North London postcode we had previously flagged for possible fraud. The Reseller Sales Director insisted the order was good and what was more, their client had provided notification of prepayment. I advised caution but given the request verbally and in writing, we allowed release.

At the point where the invoice to this Reseller became payable, we began to encounter resistance and it was only my relationship with owner and Finance Director that finally squeezed out an admission they had been had. Prepayment from their client was not received and they had a problem therefore in settling our invoice.

Despite our reservation on release and their insistence the deal was good I had to reach an agreement in order to assist them in settling our invoice. This entailed a credit note for much of the profit mark up and allowing them six months to pay our invoice, which they did. It helped that we had known and traded very profitably with the Reseller for two decades or more and continued trade after this incident.

Resellers export more than ever before and those that do frequently fall prey to MTIC fraud involvement, mostly innocently because they simply do not have any knowledge or understanding of its characteristics. Many feel they are not likely targets so control and process checks are minimal or non-existent. The cost to a business of this type of fraud is absolutely huge in terms of unpaid VAT.

In recent HMRC publicised cases, some fairly established Reseller business have been named but my guess is that for every one named, there’s another 6 out there that haven’t been caught yet.

Companies sensibly spend money investing in avoidance of bad debt, whether this be through checking prospective clients/suppliers and deals via receivables finance or credit insurance. Too little however is spent in keeping abreast of fraud, understanding how it happens or seeking guidance in steps to counter it effectively.