Using the power of data to strengthen business fraud prevention

fraud protect dun and bradstreet 

The UK has been hit by a wave of business fraud – at a potential cost of £5 billion – in the wake of the Covid-19 pandemic.  

Criminals took advantage of the Covid Bounce Back Loan (CBBL) scheme, a vital lifeline for legitimate firms which was the difference for some businesses staying afloat. 

Under the scheme, banks lent more than £46bn, yet only minimal checks were made on loans up to £50,000. Official estimates say anywhere between £3.3bn to £5bn could have been lost to fraud – and only 1% of lost or stolen money has been recovered. 

The full scale of this business fraud is not yet fully understood. But what it highlights is a hidden threat of fraudulent firms lurking beneath the surface, putting legitimate businesses at risk. In this piece we’re going to explore the steps needed for businesses to protect themselves from risk. 

UK firms counting the cost of business fraud 

Fraud related crimes in the UK are increasing – up by 25% compared to the previous year – according to the latest data from ONS.

The value of cases reaching prosecution has also returned to pre-pandemic levels, topping £1.12bn. However, this data also highlights CBBL fraud cases are not yet reaching the courts. You can be certain the people behind this criminal activity are still out there. 

Ultimately, businesses need to take extra caution to protect themselves from this hidden risk. Financial loss, identity theft, and reputational damage are all at stake. 

What are the differences between first-party fraud and third-party business fraud? 

To help understand what to look out for, let’s look at the different types of fraud: 

First-party fraud is where someone has set up different company names, registered at the same address, and then applied for multiple loans with no intention of returning the funds. It is believed this was one of the techniques used as part of the Covid Bounce Back Loan (CCBL) frauds. A simple check would help verify there aren't any existing loans at the address used, or under a different business name. The same checks should highlight other suspicious or unusual behaviour within the profile history. 

Third party fraud – also known as impersonation fraud – is when someone has stolen your business identity and taken a loan out in your name. In this instance for prevention, it’s not about checking the credit profile, instead it’s confirming the applicant (the person behind the business) is who they say they are.

How data can be used to inform your fraud prevention strategy 

Data acts as a safety net which businesses can trust – helping them both validate and verify who they are doing business with.

For example, data can be used to verify application information, crosschecking a commercial address with other data sources.

This basic hygiene factor needs to be applied to any customer or supplier interaction. Running a check on the business you are trying to do business with, and the person behind that business, should be the starting point.

Here are some key questions to ask to ensure this verification of a business is watertight, backed by data and insights: 

  1. Is the business identity legitimate or synthetic? 
  2. What is the firmographic information for the business, and can it be verified? 
  3. Businesses don’t commit fraud, individuals do — so can we identify the individuals behind the business? 
  4. Were the directors involved in any previous, now-defunct businesses? 
  5. What products are they purchasing, and does it make sense for this business to do so? 

These questions may likely form part of wider fraud risk assessment framework – enabling you to view the company from a fraudster’s perspective, and as such keep your own business a step ahead of criminals.

When applying this mindset to your own processes, defences against fraud will undoubtably be strengthened.

There was a 251% increase in business identity theft in 2020, according to Dun & Bradstreet data, so the swell of business fraud cannot be ignored.

And while the exact scale of Covid Bounce Back Loan fraud is still to be determined, businesses can still take simple steps to protect themselves. By focussing on the hygiene factors of validate and verify they will be in a much stronger position to protect themselves and their reputation.

We help businesses – large and small – to make smarter decisions. D&B Finance Analytics combines powerful insights and technology to help finance teams manage risk, increase operational efficiency, and reduce costs, but if you would like to get started with a smaller number of International or European credit reports only, you can now order them online.