Business-to-Business Fraud

Overview


One of the fastest growing and most lucrative schemes involves telemarketers who target commercial establishments and never actually come face-to-face with their victims. These fraudsters have taken a very simple scheme, with low overhead costs and minimal risk of prosecution, and turned it into one of the most lucrative con games operating today. It?s known as a "Business-to-Business Fraud."

The principal object of this fraud scheme is to cause victim companies to pay exorbitant prices for merchandise and/or to cause the victim companies to pay for merchandise that was never ordered.

Establishing Proper Procedures to Avoid Fraud


Businesses and corporations deal with a variety of suppliers for purchases of office supplies, copy machine paper, fax paper, and other products regularly used by employees to carry out their duties. Often many employees are involved in the process of purchasing supplies and are unaware of procedures used to keep supplies in stock. By failing to establish proper procedures and strict accounting methods, large and small business often fall prey to fraudulent office supply dealers.

If the fraud is detected, it is often "written off" as "caveat emptor" (buyer beware), a poor business decision by a lower level corporate employee. Seldom is there any notification to law enforcement and as a direct result little potential for criminal prosecution.

Federal Government Involvement


Most recently the FBI, IRS, and the United States Postal Inspection Service in Philadelphia initiated several investigations into the activities of local "business-to-business" telemarketing fraud operations. The first investigation involved two subjects, who over a two-year period were involved in more that $900,000 in fraudulent billings to small business nationwide.

The second investigation involves one large national firm that lost more than $400,000 in less than 12 months to a single fraudulent office supply dealer, and finally a third investigation which involved mass mailing of fraudulent invoices, of less than a $1,000 each, to businesses across the country. In this third case, the mass mailing were costing the subject up to $40,000 per mailing for envelopes, invoices and postage, but he was receiving hundreds of thousands of dollars in returns from companies paying for a product they had never requested.

From these investigations we have attempted to outline the general scheme employed.

The Scheme


The subjects establish a telemarketing center, calling nursing homes, churches, hotels, schools, hospitals and others.
  • As part of the scheme once a victim company is on the hook the subjects repeatedly make sales pushing prices up.
  • Predetermined sales solicitations are used that misrepresent to the victim company that the telemarketing firm has done business with them in the past. Often the subjects adopt the name of a large legitimate office supply company.
  • Telephone solicitations are directed to purchasing agents as well as maintenance personnel and equivalent employees without purchasing authority at the victim company.
  • The invoiced merchandise ordered by the victim companies is billed at an extraordinarily high cost. An example, the victim is billed $252 for six rolls of duct tape, actual market value $25. If the over billing is detected, the subjects claim it is a billing error and adjust the price to $28.50 for six rolls.
  • The subjects as part of the scheme fail to provide a shipping invoice or shipping order with the product which would identify the extraordinarily high cost of the product at the time of receipt.
  • The subjects ship products by United Parcel Service, utilizing a post office box return address for the telemarketing business, knowing that United Parcel Service will only return merchandise to a street address.
  • The subjects typically offer "prizes" in an effort to cleverly get unauthorized employees to order supplies. The prize offer is actually a form of a bribe or "kickbacks" to employees at the victim companies and can be held over the head of the unwitting employee if payment is not received or to continue to order products, despite the extraordinarily high prices charged to the victim companies.
  • The subjects will coerce certain reluctant victim company employees to approve payments for the over priced products. Threatening to tell their supervisors of the employee?s acceptance of "kickbacks" or "prizes."
  • The Telemarketer misrepresents or conceals material facts concerning the price of the merchandise, and often make misrepresentations on the quality ordered and the characteristics of the merchandise. In many instances the product offered is represented as a free sample, but subsequently invoiced to the victim.

Warning Signs of Business-to-Business Fraud


  • Beware of cold calls requesting verification of type and serial numbers of office equipment.
  • Calls requesting verification of the name of the office manager or receptionist. Such calls are usually a ploy to obtain a contact name within the company so that the fraudulent operator can send the unordered product to an employee.
  • Unsolicited sales calls with claims of lower than market prices on office equipment and supplies.

Tips For Businesses


  • Check out the company?s reputation with the Better Business Bureau in the city where the solicitations originates before you place an order.
  • Check out your own supplier list to determine if the caller is listed as a source for office supplies and if the address matches the one given by the telemarketer.
  • Verify to whom you are speaking on the telephone. Ask for the person?s name, phone number, company name and address. Never accept a Post Office Box as an address.