Immune to the economic downturn, fraud is on the rise and small business is a big target.

While crimes such as data mining at large corporations may make the headlines, it's small business that needs to be especially vigilant, experts say.

"About 85 percent of the data breaches are against small business, they're the low-hanging fruit," says Gord Jamieson, head of payment system risk for Toronto-based Visa Canada.

"The ones you hear about (in the news) are the larger businesses. They garner a great deal of attention because in some of these cases, you're dealing with millions of accounts that are exposed. But the smaller business merchants, with a smaller number of accounts, those breaches are more common."

While a majority of Canadian small businesses are serious about preventing fraud, a recent survey by Visa reveals 41 percent of respondents believe data thieves and hackers are not interested in targeting their businesses because of their smaller size.

The Ipsos Reid survey also shows more than half of the respondents (52 percent) never sought information about how to secure electronic information properly and 24 percent do not know where to get information about how to protect themselves.

The survey polled 885 small- and medium-sized business owners who employ between one and 250 employees and accept credit or debit cards.

Visa recently held workshops in four Canadian cities - Toronto, Ottawa, Winnipeg and Calgary - to emphasize the importance of data security for small businesses.

"The impact (of fraud) can be huge," says Jamieson. "What they're harvesting is account information to create a (credit or debit) card. The danger to small business is tremendous. If a customer realizes what happened, they may choose not to go back again (to that business)."

The number and types of frauds committed is almost as vast as the amount of fraudsters.

"We're noticing that fraud is on the rise," says Chris Lawrence, CEO for the Better Business Bureau (BBB) office serving central and northern Alberta.

"The bad guys have access to better and better technology, which is making it easier and easier to look legitimate and to trick people into doing things that they might not normally do.

"Every time there's a turn in the economy, a crisis, a disaster, it seems to bring the bad guys out of the woodwork and they will use that as a hook in terms of playing to your emotions."

The BBB is seeing more scams that include the office supply fraud, in which a business will receive office supplies they didn't order. The fraud usually capitalizes on earlier calls to the business to get names of actual or former employees under the guise of updating their mailing lists.

There's also the phoney cheque scam, which involves sending a cheque for an amount above invoice and then asking you to refund them back the difference. By the time their cheque clears, it bounces and they've already cashed the "refund" cheque. Another scam involves invoices that look legitimate, but aren't.

"Identity theft is also one of the fastest-growing thefts we have," adds Lawrence.

"They're going after the more lucrative things. If they can clean out a company's bank account, it's much more lucrative than hauling out hardware (office equipment) and pawning it."

Access to material for identity theft can appear to be innocent.

People will masquerade as couriers or find other reasons to scout out an office and see what information is available, such as unsecured laptop computers or garbage that has client information that hasn't been shredded.

"History has shown that when there's a downturn in the economy, there does tend to be an increase in fraudulent activity," says Brent Homan, assistant deputy commissioner for the Competition Bureau's prairie and northern region. "A bear market kind of creates a bullish opportunity for fraudsters."

"Our experts foresee an increase in work-at-home schemes aimed at defrauding consumers losing their jobs and similarly, we anticipate there will be an increase in fictitious career placement service," says Homan.

"We think small business will be more likely to receive mail pieces from fraudsters, posing as perhaps government grant and loan providers, as well as seeking fees and personal information for the chance to apply for capital. This is the big tipoff - if you're asked to provide a fee up front for getting some kind of credit, you should give it a hard second look."

Homan adds fraudsters don't necessarily fit the expected stereotypes of looking shifty, uneducated or creepy. They're more likely to appear as professional in their look and be courteous, he says.

According to a recent report by KPMG in Canada, almost three-quarters of fraudsters are men, with 69 percent between the ages of 30 and 49. Most commonly, they've been with their employer for three to five years.

The study, called Profile of a Canadian Fraudster, polled senior executives across Canada and covered a wide range of industries, including financial services, energy and natural resources, consumer markets and industrial markets.

The report also found that 69 percent of fraud cases were internal jobs, 20 percent external, and 11 percent involved both insiders and outsiders.

Other findings include:

* 62 percent of frauds were carried out by individuals below the level of management, while 22 percent were carried out by senior management.

* The education level of those committing fraud varied: 40 percent had no post-secondary education, 30 percent had some post secondary education, while 26 percent had either a university degree or a professional designation.

* 73 percent of fraudsters acted alone.

* The three main factors reported as leading to fraud were personal need (28 percent), opportunity (19 percent), and greed (14 percent).

* Bad habits, such as alcohol, drug abuse or gambling, were a factor in only 11 percent of reported cases.

"There are too many organizations out there that have a false sense of security when it comes to fraud," says Suzanne Schulz, a Calgary-based associate partner with KPMG Forensic. "They see it as something that happens to the other guy."

Tight controls can help, such as a workplace code of conduct that explicitly cites what behaviours are and aren't tolerated.

A whistleblower hotline that allows individuals to report suspected wrongdoing confidentially and anonymously is also another way to cut down on fraud. But proper pre-screening on new hires is a company's first line of defence.

"You really want to know who you're bringing in the door of your organization, because once they're in, they have access to all types of information and assets that can create vulnerabilities for the company," says Schulz.

Resources

* The Fraudcast.ca website is a comprehensive source of news and advice on fraud and identity theft protection.

* Educational materials for consumers and merchants on fraud prevention can be found at www.visa.ca/securewithvisa

* The Better Business Bureau (www.bbb.org/canada) and its 14 local bureaus promote trust and ethical business practices in Canada. They offer dispute resolution services and educational programs for businesses and consumers.

* The Fraud Awareness for Commercial Targets campaign is an outreach and education initiative of the federal Competition Bureau (www.competitionbureau.gc.ca). It provides businesses and not-for-profit organizations with the facts necessary to avoid becoming victims of fraud.

Are you at risk

Small businesses tend to have a perception that fraud won't happen to them, but the following are clues that you may indeed be vulnerable:

* You're busy and don't have much time to get more information about fraud.

* There are no set procedures in place to authorize purchases, pay invoices and review expenditures.

* You're distracted when you pay invoices or agree to purchases over the phone. Phoney invoices and bogus phone pitches escape your notice. Many of these schemes are designed to fly under the radar.

* Regular staffing changes. If your organization has high turnover, part-time or volunteer staff members, you may be at a higher risk of being scammed. Referring to other colleagues is a popular tactic to gain your trust. For example, a fraudulent telemarketer might tell you that they need to confirm a shipping address as your colleague purchased some supplies from their company, when in reality that conversation never took place. You provide the address to be helpful but end up receiving a shipment that could cost 10 times the going market rate.

* If your organization has purchased something from a fraudster, you might not properly review additional transactions if the fraudulent company name now appears on your vendor list.

- Source: The Competition Bureau (Laura Severs can be reached at laura@businessedge.ca)