Sunday,  September 20, 2020  9:16 am

Horror Stories

Horror Stories

This is the fifth and final article in the series about fraud which is presented by ATOQ, in partnership with ACTA and CATO and made possible by the support of

Even if you get hit with fraud just once in your business career, the results can be devastating.

Since there are several different types of fraud, you need to be constantly on the lookout for danger; here are a few real life examples of what can happen.

Type 1: Card not present:

a) Loss of $45,000

Fraudsters prey on our desire to succeed

In this case, the fraudster contacted a small agency in a rural area and said that they represented a very large processing company which was located in a nearby town. The fraudster’s pitch: the facility made use of foreign seasonal labour and he was the company manager responsible for making travel arrangements for employees arriving and departing. The agent was ecstatic since the annual value of the account was going to be almost $500,000 per year; they thought “finally, my big break!” Unfortunately the agent never actually met the “company manager.”

Several sets of reservations were made before the first set of chargebacks came in.

The agent is now paying $300 every two weeks for five years against the remaining debt owed the supplier.

b) Loss of $25,000

Fraudsters will “soften up” their targets

In this case, the fraudster started a corporate account relationship with a travel agency and did several valid transactions over a period of a couple of months. Once trust was established, they changed the credit card being used (the agent did not notice), multiple large value tickets were purchased and then it took several months before the airline returned debit memos to the supplier.

All of a sudden the “corporate account” was no longer responding to phone calls and the travel agency was stuck with the bill. It took the agency a year to cover the full loss.

Type 2: Friendly Fraud

Travellers are exploiting the “Zero Liability” guarantee

In their eagerness to promote the use of credit cards in online transactions, the card issuers (banks) are guaranteeing their clients that they will not be held responsible for any fraudulent transactions. Unfortunately for the travel industry, any transaction done by phone or online could be interpreted as unauthorized.

A recent scenario played out as follows:

Shortly before departure, a credit card is used to pay for a beach vacation for a woman and her child who travel without the cardholder. Upon their return, the cardholder says that the transaction was unauthorized.

As it is very difficult for travel suppliers to provide acceptable 'compelling evidence' that the purchase is valid, they get stuck with the bill; even though the cardholder and the traveller admit that they know each other.

To quote from promotional material put out by Ethoca, a company involved in managing credit card chargebacks:

“What is especially alarming here is the shift in customer behaviour: some merchants are now characterizing this trend not as a fraud problem, but as a liar problem.”

Friendly fraud is fast becoming the largest source of losses and continues to grow rapidly.

Type 3: Internal Employee Fraud

Fraudsters exploit business system weaknesses

Employee fraud is one of the most dangerous types of fraud and it is also the one where the financial damage can be very high since the fraud activity can go on for such a long time.

There is a well-documented case in Ontario with TriWorld Travel where the losses for both travellers and travel suppliers were in the hundreds of thousands of dollars.

In the case of one vacation supplier, the loss was over $150,000 which demonstrates well the severe financial impact a knowledgeable fraudster can cause.

To protect against internal fraud it is critical that employers maintain strong controls.