Protect Your Business Against Fraud

Joseph Budzyn
June 1, 2015

Detecting Fraud

Fraud perpetrators waste no time. They may try to obtain as much expensive merchandise as quickly as possible, before anyone becomes suspicious of their activities. Someone fraudulently using a credit card will attempt to make as many purchases as possible before the next statement is issued by the real cardholder’s bank. They may place one large order for several expensive products, or many orders with one or two expensive products. Be wary whenever extraordinary orders are placed, especially for new “customers” without an established order history, as it may be fraud.

A con artist will look for a delivery site that is easily accessible, yet not too public, such as an apartment complex with communal mailboxes. They may use the name of an actual occupant and then order items that do not fit in the mailbox. When the order arrives, the con artist picks up the fraudulently ordered goods before the real resident returns home.

If anything about a transaction feels suspicious, trust your instincts and be sure to investigate the order before shipping. After an item is shipped, it can be very difficult to recover the goods or payment.

Payment Fraud Prevention

Take advantage of the Address Verification System (AVS). AVS checks to see if the cardholder’s address and zip code match the information held at the bank that issued the card. AVS may fail for legitimate reasons, like a recent change of address – or because fraud is being attempted. If the verification fails, contact the customer for the name of the issuing bank and the bank’s phone number. Collect the Card Verification Value (CVV) from the customer. This is the three-digit number found on the back of most credit cards, or the four-digit number found on the front of an American Express card. The CVV is only printed on the card itself. If the card number was stolen electronically, the person attempting to use the card may not have this number.

Require the shipping address to match the credit card billing address. The billing address generally is the legitimate cardholder’s home or business address. This should be the address verified by AVS.

Verify checks and money orders by contacting the issuing bank. Some businesses choose not to accept payment via check or money order due to high rates of fraud.

Consider using PayPal, which offers seller protection against fraudulent payments and claims that the item was not received. A tangible item must be shipped to the confirmed address the buyer provided PayPal using a shipping method that provides proof of delivery. For more information regarding PayPal’s seller protection, please see: https://www.paypal.com/webapps/mpp/paypal-safety-and-security.

Digital currencies such as Bitcoin, may guarantee payment but Bitcoin does not support the concept of charge-back. Once a payment is made; the money is in the possession of the merchant. A refund may be issued by the merchant, but this is an independent transaction.

When dealing with purchase orders, attempt to find contact information for the organization by searching the Internet. Call the buyer’s purchasing department to verify the purchase order and purchase details.

Investigate Suspicious Activity

Verify email addresses. If the order is supposed to be from a company, but the email address is from another country or a generic email service, be concerned. It is common practice for a con artist to claim they are from a company, yet use an email address that is unrelated to that company. If in doubt, contact the customer by phone.

Call the customer. Be concerned if the person answering denies placing the order or knowing the “customer,” or if the phone is disconnected. These are signs of fraud. If there is no answer, leave a message and ask the customer to call you back. If the customer does not call back, do not ship the order.

Call the bank. See if the bank will confirm a suspicious customer’s name, address, and phone number.

When in Doubt, Second-Guess

If anything seems suspicious about a transaction, further investigation is in order. Even if a transaction just doesn’t quite “feel right,” without having firm proof of fraud, it is wise to dig deeper. Investing a little time to confirm a purchase order may save you from the disruption and financial losses associated with fraud.

Contact Us

To learn more about how OneBeacon Technology Insurance™ can help you manage online and other technology risks, please contact Dan Bauman, Vice President of Risk Control for OneBeacon Technology Insurance at dbauman@onebeacontech.com or 262.966.2739.


This article is provided for general informational purposes only and does not constitute and is not intended to take the place of legal or risk management advice. Readers should consult their own counsel or other representatives for any such advice. Any and all external websites or sources referred to herein are for informational purposes only and are not affiliated with or endorsed by OneBeacon Insurance Group. OneBeacon Insurance Group hereby disclaim s any and all liability arising out of the information contained herein.