Protect Your Small Business from Fraud: 7 Practical Tips

This article is part of a series on protecting the people and information that matter most from fraud and scams. More columns will follow.

Last year, Jeff Brown, head of commercial solutions at Equifax Canada, noticed a rise in digitally enabled scams targeting the construction sector. Fraudsters impersonated legitimate contractors to order non-descript materials—lumber, plumbing parts and other supplies—claiming delivery to an active job site. In many cases there was no job site. By the time the genuine contractor discovered the deception, the goods had been resold on the black market and the scammers had vanished.

“Business-to-business relationships often operate on net payment terms,” Brown explains. “That means suppliers may deliver goods and not receive payment for 30 days. That payment window can create a getaway opportunity for scammers.”

Once a scheme works even a few times, it spreads. “When fraudsters spot a weakness they can exploit, they intensify their efforts and the activity becomes a pattern—sometimes escalating into a systemic problem,” Brown adds.

Why small businesses are attractive targets for fraud

Small companies, including many contractors, have characteristics that make them appealing to fraudsters:

• Higher transaction amounts than individual consumers. “The average working capital loan for a small business is around $40,000,” Brown notes, meaning larger sums are in play.
• Owners and managers may not monitor their business credit closely and can be unaware of changes to their credit profile.
• Business credit information is often more accessible than personal credit data. Because companies need to demonstrate financial transparency to partners and suppliers, many details are public or obtainable. Fraudsters can use that information to learn typical bank balances, major suppliers and payment histories.
• Businesses generally have more potential access points for attackers. Fraudsters can impersonate owners, managers or employees, increasing the number of possible entry points into a company’s finances.

Red flags Canadian businesses should watch for

Scams constantly evolve, and new tools such as artificial intelligence and realistic spoofed media make it easier to fabricate credible-looking identities and communications. Still, there are common warning signs that business owners and staff should take seriously:

• Unexpected emails from organizations you don’t usually deal with, or messages coming from unfamiliar or misspelled domain names.
• Requests that pressure you to approve transactions quickly or bypass normal controls.
• Phone calls claiming that a named manager or colleague already approved a transaction. “A fraudster can easily obtain managers’ names and titles online,” Brown says.
• Deals that sound too good to be true, or communications that include suspicious attachments—always treat these cautiously.

Larger organizations often include anti-fraud procedures in onboarding and continuous training. Smaller businesses may not have formal programs, so it’s important to create a culture where employees feel empowered to question unusual requests and use common sense.

Monitor your business credit reports regularly

Checking your company’s credit profile is a practical line of defense. Unlike a consumer credit report that’s often summarized by a single score, business credit reporting typically includes a failure-risk score and a delinquency score that reflect a firm’s creditworthiness and bill-paying history.

Business reports will list financial obligations and relationships. “If you spot an unfamiliar transaction on your company’s credit report, investigate and, if necessary, dispute it,” Brown advises. “Conversely, if long-standing supplier relationships are missing, add them—ten years of strong payment history can improve your access to better rates and products.”

If your business has been defrauded: next steps

Construction-type scams are attractive to fraudsters because it can be unclear who is legally responsible—the company whose name was used, a supplier or the financial institution handling the payment—allowing criminals time to disappear while others sort out liability.

If you suspect fraud, act quickly. Recommended steps include:

• Review your business credit report for any unauthorized accounts or transactions.
• Contact the other parties involved in the transaction immediately to gather information and alert them to potential fraud.
• Report the incident to your local police and notify the Canadian Anti-Fraud Centre.

Read more about fraud and scams:

• Watch: 5 questions on identity theft
• How to protect yourself from identity fraud in Canada
• Beware of CRA phone scams
• How to protect your devices against identity theft
• 7 ways to protect yourself from ID theft