One of our material dealers recently opened a line of credit for a new customer, for the purchase of materials. The customer appeared to be a long established and reputable company. It turned out that the customer was actually a fictitious company that had stolen the name of a legitimate company and may have hacked their communications system, diverting calls and internet inquiries to the fictitious operation.
Our dealer received a request for credit, checked references, and approved a credit account. A couple months later, the scam artists sent a purchase order for a job in the area. A vendor then picked up the materials over two days but no one ever paid the bills. Unfortunately, the insured’s limit for Fraud and Deceit Coverage was only $5,000, and the order was substantially larger.
There are indications that at least 15 companies were impacted by the same highly planned scam, which occurred over many months. Read the story about one of the other companies here.
In my experience with crime prevention, a group or scam moves around to different regions, once one area is compromised.
The following tips could help you identify a possible scam attempt on your company, especially for material dealers, wholesalers, and distributors:
- Identity theft has gone commercial, and is very real. Be extremely cautious and wary of extending credit to new customers, especially those out of the area, and particularly those out of the country. Also be cautious when a customer orders materials for installers who will pick up.It’s difficult to always spot scams, due to the time and sophistication involved in some operations’ set up, but in retrospect, there were lurking clues for our materials dealer. The purchase order had “Jimmi” listed as the name, instead of Jimmy, who signed it. On a fax, Sarah was spelled “Sarh.” Sure, typos happen, but if you’ve ever received a spam email I’m sure you have noticed they often contain spelling and grammar mistakes and foreign investment “oportunities.” Look for those clues.
- Cross reference and Google new customers’ phone numbers and addresses, with and without suite numbers, including any purchase order address, if different from the original credit application. Scammers don’t want mail invoices showing up at the legitimate business, so the purchase order may be a new address. Addresses that come up having mailbox rentals or virtual offices should cast suspicion. We Googled the address on the scammer’s first purchase order and the top search result listed virtual office space, and international mail forwarding services located there. These clues could have been a good indication of something amiss.
- Verify phone numbers using directory assistance, not web searches.
- Require positive ID for new customer order pick-ups. Take the ID back to the office to “enter” or “check” it and let the receiver know there may be a slight delay in loading. If it’s a first large order, you could consider asking the local police to just “happen by” to get an impression of the receiver(s) reaction. Do they exhibit nervousness while authorities are present?
- If the order is large or particularly expensive, new customers paying by check should have to wait until their check clears, before you make delivery of the goods. Or, cash the check at their bank prior to the delivery. Phone verification of funds can be easily circumvented. I know of at least one loss in the last year where the dealer took a large check and the account was closed immediately after.
This loss emphasizes the importance of good security for your own web sites and electronic media. If someone steals your business identity, it could ruin the name, reputation and credit of your company.
The following resources provide helpful information on business identity theft prevention and assistance:
Acadia is pleased to share this material for the benefit of its customers. Please note, however, that nothing herein should be construed as either legal advice or the provision of professional consulting services. This material is for informational purposes only, and while reasonable care has been utilized in compiling this information, no warranty or representation is made as to accuracy or completeness. Recipients of this material must utilize their own individual professional judgment in implementing sound risk management practices and procedures.