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Research analyses scams on small business owners

Media release

Curtin University research has recently shown that the growing problem of scams committed against small businesses has reached ‘epidemic levels,’ with one in eight businesses surveyed losing between $100 and $10,000.

Researchers Dr Paull Weber and Dr Louis Geneste from the Curtin Business School in Perth have released the analysis from a national survey of 291 small businesses.  The research aims to understand the conditions that lead to a scam being ‘successful’ and to establish what can be done to prevent it from happening in the future.

“The results show that in the past year, over 70% of survey respondents had experienced a scam attempt and most of these had experienced multiple attacks,” Dr Weber said.

“Email remains the most common form of scam delivery, with social media now having more of an impact, particularly as a medium for hackers to gain information and access.  Phone and postal scams are still occurring, although are not as prevalent as the internet-based methods.”

According to those surveyed, Spam ‘free’ offers allowing hacker access were the most costly to Australian small business owners in 2012.  Each of these scams resulted in a financial loss of up to $10,000 and a maximum of 80 hours of productive time wasted.

For cases of identity theft, even more time was being lost in the aftermath of the scam with up to 100 hours of productive time wasted opening new bank accounts, advising creditors and customers, and generally recovering from the loss.

“Routine Activity Theory predicts that a crime is more likely to occur in circumstances where the victim is in the wrong place at the wrong time, and little is being done to protect them,” Dr Weber explained.

“In the small business context, we hypothesised that the ‘wrong place’ may actually be transacting and communicating online, as we suspected these places were where the scams had highest prevalence.”

Business owner personality traits were also shown to impact upon the likelihood of being scammed.

“The tendency for small business entrepreneurs to recognise opportunities was shown to play a role in whether or not a scammer was successful.  For example, what one person believes to be ‘an opportunity that’s obviously too good to be true,’ others thought of as ‘simply too good to miss,” Dr Weber said.

Gender was also correlated with opportunity recognition and hence risk, with men of a certain age known to be somewhat more predisposed to take a risk than women. The increased likelihood of grabbing that ‘once in a lifetime opportunity’ may make male small business owners more attractive to scammers.

Although many small business owners are actively taking steps to prevent scammers, incidences of scams have increased.

“In Australia, the number of scams reported to the Australian Competition and Consumer Commission (ACC) has more than doubled to reach some 83,000 incidents in 2011, with combined total losses of $85 million,” Dr Weber said.

“Interestingly, through the research we’re seeing two subgroups emerging – those who have been scammed, learned from their mistakes and are now being more cautious; and the other, somewhat smaller group of repeat victims who lose more money in subsequent scam attempts.”

The researchers urge anyone who comes across a scam in their inbox, letter box or webpage to report it to the ACCC’s Scamwatch.

Read the full report, Small Business SCAMS