How Escrow Prevents Fraud

How Escrow Prevents Fraud

Fraud Hits Companies and People Harshly

With over 60% of South African businesses falling victim and losing over R1.5 billion. Money loss is one thing, but fraud also hits the image of businesses and causes a lack of trust in partners.

With the impact of fraud being so devastating, why aren’t there better ways to stop it? The problem is that there are many ways that fraudsters work to steal money, information and identities, so there have to be many ways to stop their attempts.

What is fraud?

Fraud is a legal term that includes a whole group of illegal acts to trick people or steal money or information. Fraudsters might have a process they use against companies or they may see a one-off opportunity to steal money. Some common fraud examples are:

  • Customer fraud:
    • Non-payment schemes: when a company sends a product but the customer doesn’t send the money.
    • Non-delivery schemes: when a person or company buys a product but it is never sent.
    • Overpayment scheme: when someone pays a company more than they’re meant to so the company sends money back, but the first payment was fraudulent.
  • Bribery and corruption: such as when money is given to avoid the right way of doing or buying something.
  • Accounting and financial statement fraud: lying about finances or results to gain money.
  • Cybercrime: when someone steals a company’s information through hacking their computers.
  • Asset misappropriation: employees stealing or sending a company’s products or equipment.
  • Human resources fraud: human resources employees wrongly using other employees’ personal information.
  • Tax fraud: such as lying on tax reports to pay less tax.

How common are different types of fraud?

As well as these fraud categories, fraud against a business comes from all angles, such as:

  • A company employee who has key information.
  • A person outside of the company that gets their hands on company information or targets employees.
  • An employee and an outside person working together.
  • Suppliers and clients of the business.

Over one-third of fraud on South African businesses was actioned by someone in a senior management position. These employees often have important information that more junior employees don’t have, which makes committing fraud easier for them. They also have more power to make decisions and avoid the fraud protection in place to protect companies.

At around 27%, fraudsters from outside the company make up the second-largest number of cases against businesses, which is the group that cybercriminals and hackers fall into. The third most common is when someone inside and someone outside the company work together to commit fraud.

Ways to stop fraud

Fraud includes a lot of different things and day-to-day activities. This means there isn’t one solid way to prevent fraud but rather, people and companies should try to use many ways to form their suit of armour against fraud.

For example, as part of this amour, many businesses make sure they do stringent background checks on their employees and suppliers to lower the risk. On average, companies worldwide have four programs in place to help them avoid fraud, with training and monitoring being a focus.

How escrow prevents fraud

Escrow services are another part of a strong defence against fraud to keep people and companies safe when buying and selling products or services. For example, customer fraud makes up a huge 47% of fraud cases and it can be avoided with an escrow payment platform. As a business or individual, you may become the victim of customer fraud when buying products or services from another company.

Some examples of customer fraud are:

  • Fake charities and competitions that ask you for money only to keep it for themselves.
  • Fake companies – often called ‘fly by the night’ companies – that have been built to sell you a non-existent product or service and take your money.
  • Companies who say they are debt collectors and tell people to pay an unpaid bill that isn’t real.

Buying and selling are important for businesses to succeed as they may have to buy stock to stay operational. But when they don’t know who they’re dealing with, customer fraud becomes a higher risk involved. When they use an escrow system, trust is formed immediately and people can buy and sell safely.

For more information on how Escrow can help you or your business, drop us a mail on