UK vendor hit by £3m fraud

Light fingered: Long-firm frauds are becoming more prevalent in the channel

The UK channel is on red alert after an unnamed IT vendor was taken in a ‘long-firm’ fraud last month.

After establishing a healthy payment record over several months, the fraudsters placed an order for about £3m in May, before promptly disappearing.

Laurie Beagle, divisional director at credit management firm P &A Receivables, which was recently made aware of the scam, admitted it would have been difficult to detect because it was put together so well.

“The fraudsters do not mind investing a lot because they know they will get a return on investment,” he said.

Beagle said the scammers employed the name of a legitimate company, using its logo on their letterheads and a series of purchase orders that were in existence at the time.

They even set up an office with plush furniture to host their suppliers. In the months leading up to the big sting in May, they made small purchases worth £3,000-£4,000.

Beagle said the downturn has meant both long-firm and short-firm - or 'phoenix' scams pose a growing threat to vendors, distributors and resellers. It is not the first time CRN has reported on such incidents in recent months.

Darren Neath, channel director at vendor Fujitsu, said he had not encountered this type of scam, but agreed that fraud in the channel is a growing issue.

"When business is tough people are sometimes prepared to take risks that they normally wouldn't," he said. "The onus is on the channel to share information to stop this from happening."

Beagle also warned channel firms to be on their guard.

“With hardware sales falling off a cliff in some sectors last year, many suppliers were becoming increasingly desperate to make sales," he said. "As a result they were more likely to skip the usual checks they would make before authorising business.

“The criminals have seen this as a real opportunity and they have grabbed it with both hands. All channel companies need to make sure that they follow the correct processes before they do business with any new customer or extend credit in any significant or dramatic way.”

The growing threat posed by fraud in the channel was discussed at P&A Receivables’ recent EMEA European Credit Forum (ECF) in Amsterdam.

Beagle said there were no definitive figures on fraud in the IT sector. However, speaking at the event, Darren Hodder, managing director of Fraud Consulting, estimated that UK losses in the IT, media and technology sector are on course to rise to £1.5bn this year, up from £948m in 2008.