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Phone fraud: don't let thieves do a number on you!

Is your company experiencing financial losses because of unsolicited telephone sales pitches? Most unsolicited calls are from legitimate sources, but many deal in fraudulent or gray areas of the law to get a company's money.

During 1989, losses in this country due to telemarketing schemes were estimated to be excess of $300 million. Two years later, estimates for losses rose to $10 billion. If employees can recognize fraudulent telemarketing call and take some simple, preventive measures, a company may be able to avoid large financial losses.

Telemarketing schemes usually involve a "boiler room" full of salespeople who contact business using phoney sales pitches. They will try to sell anything. Some of the most common pitches include the following:

* advertising space that does not exist greatly overpriced (A survey of 13 security directors of major companies revealed all had received numerous sales pitches for copy machine paper and toner at "bargain prices" that actually were up to 10 times the normal cost.)

* specialty items that are completely different from what an individual is told he or she will receive

* "unbelievable" vacation packages that require a "small amount" of money to hold the arrangements

*valuable "no obligation" gifts to company purchasing personnel. (The salespeople later pressure the purchasing personnel into buying overpriced items by threatening to tell their bosses about the gifts.)

Many of these sales calls are followed by official-looking invoices for the product or service. If the invoice is paid, the victim is labeled a "sucker," and additional calls are made for more easy sales. One company employee I spoke with said he received three calls in one day from the same person who tried to disguise himself of each time as representative of a different company selling a different product. No sale was made.

Another company accepted a telephone sales pitch for a free trial sample of a new tool-coating process. The company received its "reconditioned" samples along with a call wanting to know how it was going to pay the $4,200 tab.

The company price. But because it did not have the agreement on paper and had not examine the tools, it did not want to risk legal action, so it renegotiated the charge to $1,400. After payment was sent, the company discovered the tools had been coated with a black marking pen, nothing else.

Fraud involves all types of tangible items and investment schemes, such as precious metal, oil and gas, gold, vitamins, double billings, credit cards, charities, office supplies, and other items or services that are misrepresented and sold at exorbitant prices or with undisclosed commissions.

If a company wants to find out how many potentially fraudulent calls it is receiving, it should ask employees to keep a record of suspicious and "too good to be true" calls. If business are alert and follow a few simple guidelines they can avoid becoming victims. Here are some tips companies should keep in mind:

* Do not buy from new suppliers until their existence and reliability have been verified, particularly if the supplier has initiated the phone call.

* Ask for a sample of specialty items before making any purchases.

* Do not pay for advertising space in an unknown directory or publication. Be wary if the caller refuses to give information that can be verified.

* Instruct employees not to give out information about office machines over the telephone unless they are sure they know who they are talking with.

* Do not pay invoices on ordered material until they are verified against goods or services received.

* Establish effective internal controls, channel all bills though one department, and verify all billing authorizations. Even though a company may already have an effective policy for many of those controls, it may be surprised at the lack of actual application.

* Beware of exaggerated claims for services, products, or prizes. Common phrases are "fabulous prize," "free gift," "going out of business discount," or "don't worry about overdue notice." Solicitations for products or services often are designed to look like invoices knowing that some companies automatically remit payment.

Title 39, Section 3001, of the United States Code prohibits mailing a solicitation in the form of an invoice unless it bears conspicuously, on its face, a notice that it is a solicitation, not a bill, invoice, or statement of account. The Postal Inspection Service investigates violations of the mail fraud law and fraud schemes.

If a company believes it is the victim of an illegal scheme involving the mail or phone, it should keep all questionable material and notes on conversations because they are important to an investigation. If a company questions the legitimacy of a business, it should request that the business send the material via the US Postal Service. If it turns out to be fraudulent, postal inspectors will become involved in an investigation.

* Be alert for company "mooches." A mooch is anyone who takes a gift in return for ordering office products at inflated prices.

A small-business owner from Lakewood, CO, recently was forced out of business as a result of a 100,00 rip-off over four years by telemarketing thieves who were blackmailing the company's bookkeeper. The importance of verifying all invoices against goods an services ordered and received cannot be emphasized enough.

Some excellent handouts on identifying and combating telemarketing fraud are available from various organizations. Here are a few:

* Alliance Against Telemarketing Fraud, National Consumers League, 815 15th Street NW, Washington, DC 20005; 202/639-8140

* Telephone Solicitations, Patty Gallatin, NYNEX, 1113 Westchester Ave., White Plains, NY 10604

* Telemarketing Fraud, How to Protect Yourself, Southwestern Bell/Telemarketing, 1010 Street, Room 1033, St. Louis, MO 63101

* Mail Fraud Information, Consumer Advocate, United States Postal Service, 475 L'Enfant Plaza SW, Washington, DC; 202/822-2200

* Xerox: Toner Phoner Pamphlet; 800/822-2200.

This Xerox number can help you distinguish between genuine Xerox suppliers and imposters. Xerox is the sole supplier of its products and can check on the authenticity of any company offering its products for sale. Xerox also has a silent witness program at 800/338-2327 (800/433-2327 in Florida) for reporting information of fraudulent attempts to market its products.

Other organizations and offices to which you can report telemarketing fraud attempts (some will check out questioned companies that solicit businesses) include the following:

* local better business bureau

* state or country consumer protection office

* state securities administrator

* county prosecutor or state office of the attorney general

* office of the closest US postal inspector

* local police

Telemarketing fraud is one of the fastest-growing business enemies in this country. The corporate world can provide a tremendous defense for itself by auditing its purchasing activities, educating employees on how to recognize the sales pitches, and reporting fraud attempts to law enforcement agencies.

In one large company, 3,120 employees were authorized to make purchases over the telephone. This number was later reduced to just a little more than 300. By establishing and enforcing basic purchasing policies, the company was able to save more than $1 million the following year.

If security directors would initiate cooperative efforts with company purchasing departments-conduct surveys of current procedures, provide security awareness training about telemarketing fraud, and implement appropriate new procedures-financial savings would be immediate.

Telemarketing fraud is difficult to investigate, prove, and prosecute. Most involve interstate activity, which is more difficult for local authorities to control. The day may soon come when telemarketing fraud, like major credit card fraud, becomes a federal violation

Until that time, security professionals in private industry must declare war. The solution lies in recognizing the problem, developing security awareness programs, and cooperating with law enforcement agencies and other security professionals.
COPYRIGHT 1992 American Society for Industrial Security
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Author:Walton, J. Branch
Publication:Security Management
Date:May 1, 1992
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