Revealed: Why SMEs are the perfect target for scammers

Who has not experienced the scam phone call from someone purporting to want to fix a problem with Windows on your PC, or help you recoup a large sum of money being held in a trust just waiting for you to claim it?

This sort of scam is a global problem of arguably epidemic proportions. In Australia, recent data released by the Australian Bureau of Statistics on consumer fraud identifies that over one third of Australian consumers were exposed to a scam in 2011, with roughly one in ten of those exposed losing money to the scammer.

What about small businesses?

Small businesses are also targeted by scammers, but it is unclear whether they get scammed as much, more or less than individual consumers.

International research suggests that the majority of small businesses will sooner or later lose money and time to scammers.

A 2008 study conducted by the Federation of Small Business in the UK indicated that 54% of small businesses had been a victim of some form of online crime or fraud. Yes, that’s right, more than half!

The Australian Consumer and Competition Commission (ACCC) has been reporting significant year-on-year increases in the reported incidents of scams. By “significant”, we mean a fourfold increase between 2009 and 2011 from 20,554 to 83,150 scam related contacts.

A significant proportion of these reports come from small businesses, but no specific small business data is available from existing Scamwatch reports.

According to Dr Michael Schaper, ACCC deputy chairman and chair of the Australasian Consumer Fraud Taskforce, small businesses are especially vulnerable to scammers.

“Small businesses are often the weak link that clever scammers will target,” Dr Schaper said.

“We need to better understand this phenomenon: Why businesses fall victim, and what we can do to help them.”

To begin addressing this knowledge gap we inserted some brief questions on scam prevalence in our regular small business benchmarking program. The results were interesting indeed.

While very exploratory at this stage, the rate of loss from businesses looks to be potentially five times that of consumers. In addition, we were surprised to discover that one in eight small business owners was unable to determine whether they had been scammed or not.

Results from this preliminary study and our review of the literature point to several characteristics of the specific business and of the owner that may play a role in the likelihood of scam loss.