Something smelled fishy to George Sarris. When the 49-year-old owner of The Fish Market Restaurant in Birmingham, Alabama, opened a letter from a disgruntled customer demanding a $6.89 refund, his gut told him to check it out. He didn't recall the customer and, after a few phone calls, realized that the author of the letter was nowhere to be found. Then, Sarris started hearing that similar letters were popping up in eateries all over town. In fact, the same "customer" who had written to Sarris had blanketed other area restaurants with demands for refunds.
"He didn't ask for a lot of money, so some people would probably send it, no questions asked," says Sarris. "If he sent out 1,000 letters and got half back, that's over $3,000."
Sarris is just one of thousands of entrepreneurs targeted by scam artists each year. In fact, the Association of Certified Fraud Examiners estimates that fraud, ranging from bogus billing and dishonest direct mail to sales scams, costs U.S. businesses more than $400 billion annually. Shirley Rooker, president of Call for Action Inc., a nonprofit scam-busting organization in Bethesda, Maryland, thinks more businesses need to take the problem seriously.
"I don't think businesses think in terms of being victims of fraud," Rooker says. You must be aware that scam artists are threatening businesses like yours, often preying on employees who may be less likely than you to question their smooth-as-ice approach. Warns Rooker, "Often, the weak point is the person answering the phone who unknowingly gives out information."
The tactics used by scam artists range from the classic to the high-tech. Here's a rundown of what to watch out for:
Fraudulent Charities: Within 48 hours of the September 11 terrorist attacks, reports of bogus charities claiming to collect for relief efforts began to surface. You can check out any charity before sending money by visiting the Web sites of watchdog groups such as the Better Business Bureau (BBB) and the American Liberty Project, a cooperative effort between Amazon.com, AOL Time Warner, Cisco Systems, eBay, Microsoft and Yahoo! If you wish to donate to smaller, community-based organizations, which may not be listed on watchdog sites, you should get information in writing and request references. Another tactic: Check the charity's Web site domain through the WHOIS function at Network Solutions to find out who registered it and whether the name on the registration matches the name of the charity. If it doesn't, you should be suspicious.
90# Scam: In this scenario, callers who claim to be telephone company representatives ask the receptionist to dial 90# to test the phone. On many systems, this allows a third party to then make calls on your dime. Some variations include callers asking to be transferred to extension 90 or 900. Tell your employees: When a caller asks for 90#, hang up.
809 Scam: Beware of urgent letters or e-mails demanding you call a number in the 809 area code. Originating in the Caribbean, these 809 numbers are often "pay per call," much like 900 numbers in the United States, and may cost you up to $25 per minute. While some 809 numbers are legitimate, make sure to check the origin of any unfamiliar area code before you dial it. You can use the listings of U.S.-based area codes found in most telephone books, or call your long distance provider for information.
Voice-Mail Access Scams: The remote access features of Private Branch Exchange (PBX) systems can be cracked by hackers--who can then run up thousands of dollars in long-distance charges in a short period of time. Monitor phone bills closely and change the authorization numbers often.
Dummy Invoicing: According to Ron Berry, senior vice president of bureau affairs for the Council of Better Business Bureaus Inc. in Arlington, Virginia, fake invoices still rake in big bucks for scam artists. Your business may receive a "look alike" invoice for a product or service that it regularly orders, such as local media or Yellow Pages advertising. Thinking the bogus bill is valid, you may pay it. Berry reminds entrepreneurs to set up systems for invoice verification and approval.
Toner Phoners: An employee, usually an assistant or receptionist, gets a call from a company posing as your office supply provider. The scamster asks him or her to verify the make and model of your copier, then sends inferior and overpriced supplies that were never ordered, using the employee's name and the acquired copier information as proof of the order. Your company is billed an exorbitant price, and the scamster uses high-pressure tactics, such as the threat of legal action or a collection agency, to get paid. Rooker says this scam is rampant and that you should tell employees never to answer questions about your company's equipment over the phone.
Hot Opportunity--or Scam?
Before you write out a check to a seemingly lucrative franchise or business opportunity, make sure you've done your homework by fully researching the company. Read these how-to articles for more information:
- Entrepreneur's Guide to Franchising
- How to Research a Business Opportunity
- 10 Warning Signs of a Shady Opportunity
Government Document Dupes
In this scam, you receive an official-looking document that leads you to believe you must purchase signage, such as minimum wage declarations, and display it by law. But in most cases, signage that's mandated by law is available for free from the government. In another twist, the BBB confirms that a number of Alabama-based restaurants received demands from the "Environmental Protection Enforcement Agency" to fill out a lengthy questionnaire and return it with a fee of $189 or risk being fined $5,000 per day. If you get an official-looking document demanding money, call the state or federal agency referenced in the document to verify the demand is valid.
Phony Customer Con: This is the scam mentioned earlier in Sarris' story. Here, a scamster sends a letter posing as a disgruntled customer and demands a refund for a nominal amount. Because the amount is so small, many business owners send it without question. To avoid being ripped off, follow up on such requests with a call to verify that the customer is real or ask the customer to send a copy of the receipt.
Business Identity Theft: Immediately following the World Trade Center disaster, hundreds of thousands of confidential papers were strewn about the streets of Manhattan, many from brokerage firms and other places of business that house sensitive information. If this information were to get into the wrong hands, some of it could be used in identity theft scams against both businesses and individuals.
Recently, Rooker met a pet shop owner who found suspicious charges on her company credit card. Soon, she realized that someone had deceptively obtained credit cards and borrowed money in her company's name. You should closely monitor bills and watch for erroneous charges. On a daily basis, follow basic precautions to guard against identity theft, including destroying business credit offers before discarding them. Safeguard important information such as tax identification and bank account numbers, and watch for change of address notices from credit companies or other vendors.
Energy Shocking: Similar to phone service "slamming," shocking is the practice of switching energy service without permission in states where energy deregulation allows for a variety of service providers. The BBB advises that companies check their bills monthly for irregularities to safeguard their power sources.
Copier Service Scheme: In this brazen scam, the con artist poses as a service technician for your office equipment. Once he gains access to your copier or other expensive machinery, he then substitutes an inferior machine or steals the office equipment altogether. Always ask service technicians for identification, and if they show up unannounced, call your provider to double-check identity.
"Cash a Check, Get a Bill" Con: In this scenario, businesses receive nominal checks in the mail resembling rebates or refunds. However, the check has fine print that says cashing it authorizes the issuer to bill the business for a product or service, change long-distance carriers and so on. Review all checks and their point of origin. If it seems suspicious, don't cash it.
you've been scammed, you have several options, says David
Lenci, an attorney with Preston Gates & Ellis LLP in Seattle.
Your state's attorney general's office or your local law
enforcement agency may have an unfair
trade practices group.|
"These agencies may take action on your behalf, especially if the scam is widespread," says Lenci. He adds that, depending on the cost of the scam, you may choose to file suit on your own. Federal authorities, such as the FTC, U.S. Postal Service or FCC, may also be able to help, depending on the nature of the scam. Watchdog groups and nonprofit scam-busting organizations can also assist by providing information and advising a course of action.
Regardless of whether you fall for a scam, it's important to report it. Says Frank Gorman, an attorney with the FTC, "[The FTC] houses a database of scams that helps law enforcement officials determine how widespread a particular scam may be and whether or not the FTC or other agency will file suit."
Fake Directory/CD-ROM Ruse
A telemarketer uses high-pressure tactics to get the business owner or employee to participate in, and then purchase, a directory or CD-ROM that never materializes. While there are a number of reputable directory publishers, always ask to see documentation of the company and the product in writing, and check with the BBB to see if any complaints have been filed against the publisher.
Invalid Insurance: Rooker cautions businesses that receive questionable insurance bills or phone solicitations to buy insurance to beware of con artists selling or billing for phony policies. Buy insurance only from reputable brokers or companies, and verify invoices before paying them.
Advance-Fee Loans: According to Berry, it's common for cash-strapped entrepreneurs to fall for the promise of a loan that's "guaranteed" once a processing fee or other fee is received. Once the business owner sends the fee, which can total up to several thousand dollars, the loan never materializes. Berry advises that businesses should conduct financial transactions only with trusted institutions and never to send an advance fee for a business loan.
Domain Registration Rooks: Scam artists try to sell new top-level domain names, such as .biz and .info, before the names are available for assignment, and usually at a highly inflated price. Be sure to register using a reputable service such as Network Solutions or Register.com.
Phony Web Site Scams: You're promised a free Web site and a month of free hosting. Once you give your credit card information, though, you never hear from the provider again. Protect yourself by doing business only with one of the many established and reputable companies that provide this service, asking for references and, if possible, using a credit card for payment to protect yourself from liability.
Hackers, Crackers and Thieves
Have an online business? Then a whole new world of fraud is waiting especially for you. Find out which scams to watch for in Scram, Scam!
If you think it can't happen to you, you're wrong. Even seasoned entrepreneurs are suckered by scam artists. "Because small businesses often don't have those layers and layers of protective procedures, one person may be handling purchasing and invoices, and that person may not have much experience in implementing checks and double-checks," Berry explains.
Rooker points out that some businesses may be more at risk than others. Many con artists target companies that have recently moved or opened a new office. In addition, Berry adds that scams are more prevalent during the winter holidays or over the summer, when employees tend to be on vacation and someone other than the regular manager or bookkeeper may be handling orders or payments.
Overall, says Berry, the best offense is a good defense. He advises that no matter how small your business is, you should educate your employees--especially those who answer phones, order supplies and pay bills--about how to recognize common scams. It helps to discuss prevalent ruses and post them around your place of business. Institute a system of documenting orders and checking invoices against those orders. Never buy over the phone unless you've established a relationship with a particular vendor. And always check unknown parties with the BBB to see if any complaints have been filed. Says Berry, "It's awfully hard to get your money back once it's been lost."
If you've been victimized by a scam or need more information on preventing scams, these organizations can help:
- Better Business Bureau
- Call for Action Inc.
- Imaging Supplies Coalition for International Intellectual Property Protection Inc.
- National Fraud Information Center