Published in the September/October 2024 issue of Franchise Canada, this article explores how franchisees can safeguard their businesses from online fraud and financial fraud.
Small business owners have enough on their plate without having to worry about fraudsters looking to make an easy buck. Thankfully, there are a few key steps franchisees can take to rest assured their money is in good hands.
Watch the news on any given day and you will likely be subject to stories about the latest con targeting consumers, businesses, or both. And in the 21st century, the odds of it being a financial scam conducted online is disproportionately high.
“The types of frauds are constantly changing or evolving,” says John Zajic, Vice President, Corporate Policy & Compliance at Telpay, the largest independent electronic payment company in Canada. “Various forms of phishing attacks, social engineering, malware, and business email compromise are the most common threats to business and individuals.”
From 2014 to 2019, the Canadian government reports that over $16 billion was lost to fraudsters, with a quarter of incidents amounting to $1,000 or more. Vulnerable populations are also more likely to be victims: immigrants, people with disabilities, and those who had “difficult experiences” such as intimate partner violence or childhood violence were at a higher risk of such events, according to Statistics Canada. On the contrary, those with higher education and higher income were also more likely than average to be targeted by these scams.
Despite these numbers, fraud is still a crime that is grossly underreported to the police. In fact, only about one in 10 Canadians who have been scammed take the step to officially report it. (There is a larger percentage that reports the incident to their bank/credit card issuer or the Canada Anti-Fraud Centre, however.) The reason for this could be the deep-seated shame that comes with being a victim, even if it didn’t occur through any intentional action on their part.
Bad actors are becoming exceptionally adept at both targeting their victims and executing their plans, and the data shows that their victims span a wide range of ages and life experiences. Gone are the days of obviously counterfeit emails urging you to provide payment so a foreign prince can access his funds being held in trust—though deceptions of that nature obviously exist, there are other more effective ways that bad actors are finding their way into your bank account.
One of these methods is through authorized push payment, or APP fraud. In this attack, bad actors posing as legitimate payees reach out to update their banking information, so the next time a payment is processed, it lands directly in their account. This type of fraud can go unnoticed until the real vendor reaches out, wondering when they can expect payment—which could be weeks or months, and many thousands of dollars, later.
Zajic stresses, however, that falling for these schemes isn’t a sign of weakness or a personal failing. Many factors come into play. “The frauds are so sophisticated that even a person who does this kind of work every day can’t detect it,” he says. Ultimately, the victim could be someone just having a very hectic, busy day, and therefore doesn’t have the time to look further into what appears to be a simple email request.
The best defense against APP fraud is a straightforward process: picking up the phone. The only way to verify such fraud is by directly contacting the vendor to confirm any change requests. Zajic believes that incorporating this step into your accounts payable process can help protect your franchise from this common type of vendor fraud. It is important to remember that you received this message because you have been a victim of phishing or business email compromise. Simply replying to the message would be a mistake.
A misguided response to dealing with digital financial crimes may be to revert to “non-digital” payment methods, such as paying suppliers by cheque. This method is not only slow, costly, and inefficient but most importantly does not eliminate fraud; cheque fraud remains very common, explains Zajic. According to the Canadian Bankers Association, over one billion cheques are processed in the country each year, and CIBC reports that counterfeit, forged, forged endorsement, and altered cheques are all prevalent forms of cheque fraud.
Fortunately, third-party service providers like Telpay offer dynamic, cloud-based payment tools that enable businesses to make efficient digital payments to their vendors. Telpay provides features such as dual authorization, customized approval limits, role-based permissions, detailed reporting, and comprehensive audit trails. Additionally, Telpay can manage supplier payment information, including banking details, for “verified” billers available in its biller list. Other security measures, such as two-factor authentication, help protect its clients’ cloud-based accounts.
There are other ways in which franchisees can help fortify their businesses against fraud. As Lyn Walker, Marketing Manager at Telpay, explains, knowledge is power.
“Education, awareness—you’ve got to start there,” says Walker. “But having a simple process of verifying the information, not taking it at face value, is key as well.” Implementing anti-phishing and anti-fraud training for staff, either at the franchisor or franchisee level, can also go a long way in preventing disaster.
There may not be any true fail-safe when it comes to fraud, but business owners who recognize that they have the power to stop bad actors from stealing already have a leg up.
As Zajic notes, “Using a third-party vendor can make your life easier and help manage some of the risks associated with digital payments.”
And for time-strapped entrepreneurs, that reassurance is priceless.
For more information on Telpay’s payment services, please visit www.telpay.ca or contact sales@telpay.ca.
