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Risky business

Cite Magazine
Issue 22 - Summer 2013

Shedding light on the shady world of online scams shows that Australia’s small businesses could be losing more than $1 billion a year.

Waitress looks at laptop whilst speaking on the phone
Small business owners are more likely to be targeted by scammers over individual consumers

Research into how – and how many – small businesses in Australia are falling victim to scams reveals it’s a very common and costly problem, especially in the ‘dark alley’ of computer-based transactions.

Phone and postal scams still occur, but email has become the most common form of delivery. Social media is being used to gain information and access for a wide and ever-expanding range of scams, from small bills for non-existent or dubious services such as directory listings, to large-scale identity theft.

“Businesses that go online and do e-commerce – have a shopping cart online, for example – are in a dark alley, and the longer they stick around with inadequate security, the more likely they are to be caught up in a crime,” says Dr Paull Weber, from Curtin Business School (CBS).

Weber and Dr Louis Geneste, also from CBS, recently conducted the first national survey of small business scams. One in eight of the 291 businesses that responded to the survey said they had fallen victim to a scam in the previous 12 months, with losses ranging from $100 to $10,000.

“The losses are likely to be under-reported because of embarrassment and, in some cases, blissful ignorance,” Weber says.

“Australia has about two million actively trading small businesses, so we estimate the total losses to be well in excess of $1 billion a year.”

Scammers are even more likely to target small businesses over individual consumers because they have more money and make their contact details openly available, he says.

There’s also a hidden cost.

Adds Geneste: “When a small business has lost money to a scam it can affect its ability to trust business relationships in the online environment. It can shy away from using the web.”

Weber and Geneste encountered their own example of such wariness. When they offered an iPad as a prize to encourage responses to the survey, it took several emails to convince the lucky winner that it wasn’t a scam.

“He eventually Googled the University to check our credentials and contacted us,” Geneste says.

Dr Michael Schaper, Deputy Chairman of the Australian Competition and Consumer Commission (ACCC) and an adjunct professor at CBS, says Curtin’s research plays squarely into the ACCC’s goals for promoting scam awareness.

“Most online scammers operate from outside Australia and don’t wait around for us to find them and take them to court, so prevention through education is vital,” Schaper says.

In 2012 the ACCC’s SCAMwatch received about 90,000 reports of scams totalling $90 million in losses.

“And that’s just the tip of the iceberg,” Schaper says.

Weber and Geneste are planning the next step in their research, the ultimate aim of which is to develop a reliable predictive scale or model of a small business’s financial loss through scams.