External Fraud on Businesses or Non-profit Organizations
External fraud, or fraud from outside of an organization, commonly refers to fraud committed by vendors, customers, or competitors. External fraud may involve individuals, rings of individuals, organized crime, and even terrorist groups. External frauds may occur along with other forms of fraud. For instance, vendor fraud might also involve a corrupt employee in an organization’s purchasing department (occupational fraud).
Main forms of external fraud include vendor fraud and customer/competitor fraud. We describe these areas next.
Vendor Fraud is uncommon when an organization has good purchasing practices, uses a voucher system, and carefully inspects all items coming into its receiving department. But many organizations do not have such internal controls. Vendor fraud often occurs in three ways:
- Short-shipments: Orders being shipped as incomplete or missing yet charging for a full shipment
- Balance Billing: Involves the vendor merely billing the ‘balance on the account,’ allowing the vendor to overcharge or fail to credit a returned shipment.
- Substandard Goods: When the vendor charges for a product but delivers a product of lesser standard.
Customer Fraud can occur multiple ways. Customers may defraud an organization through accounts receivable and returns of goods. An example of returns would be when an individual orders an item online and later returns a different or lower quality item for full credit.
Competitor Fraud is highlighted by two common schemes: theft of proprietary information and sabotage. Theft of information is a nearly endless crime having many forms and falls under the corporate espionage umbrella. Competitors can use many techniques difficult to detect. Investigating these kinds of cases tends to require assistance from counter-intelligence specialists.