At a glance
- Commercial crime includes acts of theft, fraud and embezzlement, and it is often trusted employees who are the culprits
- Dealing with commercial crime can be incredibly difficult for organisations, from both a practical and emotional perspective
- Zurich wants to give brokers the tools and information to highlight the significance of this crucial cover with their customers
Many criminals are reverting to ‘paper and pen’ techniques to con businesses out of their money, KPMG’s bi-annual Fraud Barometer report has warned. As organisations focus their efforts on technology-driven defences, low-tech scams, such as cheque and invoice fraud, are seeing a resurgence.
Phillip Perkins, Financial Lines Underwriter at Zurich, says: “Frauds have certainly become more sophisticated, but it is a number of quite simple frauds that are catching people unawares. Two in particular have been doing the rounds.”
Firstly, the ‘president scam’, where someone phones up an employee in the finance department, or similar, pretending to be the president or CEO of the business. They then ask them to make a transaction on their behalf, stressing that it must be kept confidential at all times.
The second is where an invoice is received, seemingly from one of the business’s suppliers or customers, requesting a change of bank account details.
“These two frauds can be very damaging, but are actually very simple to pull off. In both situations people have been caught out when they haven’t followed protocol, and have taken people’s word that they are who they say they are,” says Phillip.
While all organisations are at risk, industries that are particularly susceptible include construction, retail, distribution, telecommunications and leisure.
Spotting the culprits
Thieves and fraudsters can include internal employees, external sources, or a combination of the two working together. Collusion between staff and third parties can remain undetected for long periods of time, and hence cause greater losses.
“If you look at the statistics on the typical fraudster, they are usually those in a position of trust who know the internal workings of the business very well. This means they can manipulate certain functions to their advantage and cover it up,” says Phillip.
The cost of commercial crime:
- Direct financial loss
- Investigation costs
- Contractual penalties
- Business interruption
- Reinstatement of damaged property and/or data
- Implementing improved controls and procedures
“A lot of the time, employers are overly trusting of their employees, and can be blinded by that.
Unfortunately, the message for brokers to get to their customers is to take a more cynical approach.”
Until you get hit by a big fraud, you don’t know it is going on. You never know what is underneath the bonnet until it is too late.
Protecting your customers against commercial crime
The average fraud case is valued at £2.9m. It is not just the direct financial losses that will impact on a business, but also the associated costs of commercial crime. These include the costs of investigating and identifying the fraud, reinstating any damaged property and/or data, and the task of implementing improved controls and procedures to prevent recurrence.
These frauds really do take businesses by surprise, and are not easy to deal with internally, especially for smaller organisations. Commercial crime can greatly impact a business, from both a practical and emotional perspective.
Raising the issue with customers
These frauds really do take businesses by surprise, and are not easy to deal with internally, especially for smaller organisations
Phillip Perkins, Financial Lines Underwriter at Zurich
Zurich is happy to talk to brokers about these risks, and to provide a cost estimate should it help raise the issue with customers. For basic indications, Zurich’s underwriters would require the following information:
- Who the business is and what they do
- How many employees there are and their locations
- Whether the business maintains a segregation of duties – having more than one person required to complete a task
- In particular, whether there are dual controls for making transactions and giving instructions – for example, two signatures required for transactions above a certain value
For a full quotation, a short proposal form would need to be completed.
Zurich’s crime policy can provide protection against all main types of commercial crime, and the key costs associated with the investigation and recovery. “Our policy covers all of the costs involved in trying to get back to where you were before the event happened,” says Phillip.
“It is important for brokers to get the message out to their customers that this is a crucial cover. Until that big event happens, you never quite know how exposed you are.