How to calculate your products desirability and evaluate your commercial crime risk.
Imagine, if you will, that you are a poultry business. Your product is highly desirable: chicken is the most widely bought meat globally. Have you ever thought about how easy it is to steal poultry? It is an extremely portable product and due to the nature and volume of sales it is surprisingly straightforward to steal. A faked invoice or paying-off the warehousemen or guards on the gates of the processing plant will allow a thief to drive right up to the plant and collect their haul. From here, it is very simple for your thief to sell-on your product. People want poultry products and whilst cheap poultry may raise a few eyebrows, it is unlikely people will turn down the opportunity to buy cheaper food, particularly in the current economic climate. Selling on a stall at a food market or arranging with a retailer to buy the products is an easy route for your criminal to take, especially as the police are less likely to question the sale of chicken in these environments.
Assessing the desirability of your products
Agribusinesses deal in the most stolen goods worldwide bar cash and, as a result, the sector has seen numerous large losses worldwide – predominantly in basic food stuffs such as milk, meat, bread, and cereals rather than finished products. Employees working together with outside groups can cause large losses incredibly quickly. So, how do you calculate the desirability of your product to a commercial criminal? It is a straightforward process of analysing how desirable, portable, and saleable your product is. If you can answer yes to these three questions when considering your product, then you are at a high risk of being a target for commercial crime.
Desirability – Do people want / need your product?
Portability – Is it easy to steal, especially in large volumes?
Saleability – Is it easy to sell and would it attract attention to the seller selling it?
Which employees are the most likely to commit a crime?
There are several ways businesses could be exposed to crime, both from within the organization because of employee infidelity and from third parties. With every employee comes a plethora of risks that a business opens itself up to. From an addict or an employee caught in a compromising situation, to dishonest staff members who want to defraud the company for a share of the profits, there are endless possibilities of how your teams can put your company at risk and the losses incurred are not covered by your standard property damage or business interruption insurance contract. So, what should you look out for? How do you know who is likely to steal your products, or partner with criminals to rip you off?
Employees with addiction issues are a prime concern for any organisation, and not just because of their decreasing performance levels. They start out not wanting to commit fraud, but their addiction rapidly turns into a problem for the employee. Typically, they will have a drug, alcohol or gambling issue and will ‘borrow’ money from the company to rectify an immediate problem, always with the intention of paying the money back. However, as their addiction worsens, the problem usually spirals out of control and they start taking more and more to fix their predicament, finally realizing that they cannot repay it; then they run. Whilst not the largest losses these can reach some big figures and €1m is not uncommon, although figures in the hundreds of thousands are more likely.
Another scenario could be that a member of staff is found in a compromising situation and criminals find out and use this circumstance to blackmail them by forcing the employee to carry out some tasks to either enable them to access your business (electronically or physically), or to simply force the employee to steal directly. It can be anyone in a company, and losses can be from around €50,000 for a straightforward taking of cash from the safe, to millions of Euros because they granted access to the computer systems.
Types of commercial crime
Fraud by employees in any business sector, including food and agriculture, comes in many guises. Invoice fraud can very quickly become costly to an organisation. A member of staff who has control of tendering or contracts might conspire with a supplier to inflate invoices. Normally they split the difference between the ‘real’ price and the stated price. This means that either poor quality services are supplied, or overcharged services with reasonable quality are provided. If the member of staff is allowed a level of autonomy in this area it can be hard to detect as they will often receive fake quotes to cover the fraud.
Delivery fraud is another possibility and often works hand-in-hand with either blackmail or general corruption. A gang will find a suitable member of staff who has access to warehouses or other storage facilities and find a way to get them to aid them in their plans. This can be through a simple cut of the profits (Improper Financial Gain) or through blackmail. Either way the staff member will grant them access to the facility through either forged paperwork or being there themselves to open the door. Whole lorry loads of goods can be taken in this way and losses can mount up quickly. It is only when the goods are not paid for that the loss is discovered, which can often be some time down the line. Securing against this can be difficult as the papers to release the goods will be official and unlikely to be queried at the gate.
More complex frauds are social engineering and fake presidents, which have the same method at their core. They both rely on a level of trust either built up over time or gained by electronic means.
Social engineering can take the form of regular phone calls building-up a rapport, or targeted emails (finding out the hobbies of a member of staff and then sending them links – Spear Phishing), or even working on an out-of-work friendship which then turns into a request for help. All of these come under the social engineering banner. Once trust is established there will be a request to transfer funds, either for a legitimate looking reason or to help the person conducting the fraud. Once the money is transferred the contact usually ceases immediately.
Similarly fake presidents can fox even the sharpest of employees. Criminals make a call seemingly from the CEO, CFO, or someone else senior in the business. It typically occurs on a Friday afternoon with a request for an urgent transfer of funds. The reason given is usually that if the transfer does not go ahead then a deal will fall through to the harm of the company. The call will seem to come from the senior member of staff but will be the criminals who have hacked your phone systems to make it seem like it is the phone number of the person they are impersonating, or used email addresses which are one letter different to the senior employee. A less sophisticated version of this is hijacking emails and changing bank details at the last minute to the fraudster’s account.
As we can see from the above, “non-tangible damage” (financial) losses, caused by infidelity of employees or third-party criminals, can cause quite a big gap in the balance sheet of any Food & Agriculture enterprise. To minimise your losses, these types of risks should be covered by additional commercial crime insurance policies, and employees should be educated about possible fraudsters and their tactics, so they know what to look out for and how to deal with it if they come face-to-face with a fraudster.
Group Practice Leader Financial Institutions
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