A Guide for Local Businesses and Governments
Gift card scams, while not new, have evolved in their sophistication and reach, becoming a real concern that targets not just individuals but businesses, non-profits, and local government offices alike.
We now find ourselves on the frontlines of this digital battlefield, which can slip through the cracks of even the most robust security measures.
In an environment where trust is paramount, the repercussions of falling victim to such scams can be far-reaching, tarnishing our reputations and eroding public confidence.
This article sheds light on these gift card scams aimed at organizations, providing a fresh perspective on reducing or eliminating them. And it will empower you with insights and effective strategies to safeguard your organization.
Let’s delve into this pressing issue impacting businesses and local governments, and together, let’s build a safer, scam-free landscape.
How do gift card scams work?
At the most basic level, gift card scams involve fraudsters manipulating unsuspecting individuals or organizations into purchasing gift cards and then sharing the card information, which is quickly drained of value.
But, just like an iceberg, there’s a lot more beneath the surface of these scams that we need to understand.
The 6 types of gift card scams targeted at business and local governments
1. Business Email Compromise (BEC) Scams
In this scam, cybercriminals impersonate a high-level executive or a trusted vendor and send a fraudulent email to an employee requesting them to purchase gift cards for various reasons (e.g., employee rewards, client gifts, etc.). The email appears legitimate, and the unsuspecting employee purchases the gift cards, providing the card details to the scammer.
2. Fake Invoice Scams
Scammers create fake invoices for goods or services and include a request for payment via gift cards. The targeted business, believing the invoice to be legitimate, purchases the gift cards and sends the details to the scammer, who then sells or uses them.
3. Vendor Impersonation Scams
In this scam, fraudsters impersonate a legitimate vendor or supplier and send a fake invoice or payment request for an outstanding balance. The scammer requests payment via gift cards, and the targeted business, believing they’re paying a legitimate vendor, unwittingly provides the gift card information to the scammer.
4. Employee Impersonation Scams
Scammers may impersonate employees by gaining access to their email accounts or creating fake email addresses that closely resemble the employee’s actual email addresses. They then send a request to the HR or payroll department for a salary advance or bonus payment via gift cards, and the targeted company sends the gift card details to the scammer.
5. Tech Support Scams
In a tech support scam, cybercriminals pose as tech support representatives from a well-known company or an internal IT department. They contact employees, claiming an issue with the employee’s computer or software requires immediate attention. They instruct the employee to purchase gift cards for the necessary repair or software, and the targeted employee provides the gift card information to the scammer.
6. Overpayment Scams
A scammer may pose as a customer and make a large order or purchase from a business. They then intentionally overpay for the order using a fraudulent check or credit card and request the difference be refunded via gift cards. The business purchases the gift cards and provides the details to the scammer, only to find out later that the original payment was fraudulent.
Beyond the obvious: A deeper dive into gift card scams
Diving deeper into how gift card scams work reveals a complex ecosystem that often begins with social engineering, evolving tactics, and links to broader cybercrime.
Social engineering is a common thread in gift card scams. It’s the psychological manipulation of people into performing actions or divulging confidential information.
The FBI’s Internet Crime Report listed social engineering as a top tactic in cybercrime, attributing over $57 million in losses to phishing scams alone. For example, in gift card scams, fraudsters often impersonate authority figures or trusted vendors, convincing employees to purchase gift cards under the guise of a business need.
Gift card scammers always change their tactics
Scammers are not static; they constantly adapt to new defenses.
Emerging tactics include using sophisticated email spoofing and even AI-powered deep fake audio to impersonate executives.
In one striking example, a UK energy company’s CEO was duped into transferring €220,000, believing he was speaking to the company’s German parent firm’s CEO.
The connection to cybercrime
The tentacles of gift card scams often reach into other forms of cybercrime.
Stolen gift cards are easy to sell on the dark web, providing a financial conduit for other illegal activities. The RAND Corporation’s research suggests that cybercrime revenues could be as high as $1.5 trillion annually, with gift card scams contributing to this staggering sum.
The ripple effect: How gift card scams leave their mark on businesses and local governments
The fallout of gift card scams extends far beyond the immediate financial losses.
Though these losses can be crippling for small and medium-sized businesses and government offices, the long-term consequences can be even more devastating.
Let’s unpack the far-reaching impacts of gift card scams on these organizations.
First and foremost, the financial losses can be substantial
As previously mentioned, the Federal Trade Commission reported that gift card scams account for hundreds of millions of dollars annually. For SMBs and government offices with limited budgets, these losses can cause significant setbacks and hinder growth or essential services.
Beyond the financial damage, the reputation of the affected organization may suffer.
When news of a gift card scam becomes public, trust in the organization can erode. Clients, partners, and constituents may question the organization’s competence and security measures, leading to declining business or support.
Employee morale takes a hit.
But the impact continues beyond the organizational level. Gift card scams can also take a toll on employee morale and trust.
When employees feel that their workplace is vulnerable to scams, it can create a sense of insecurity and breed mistrust among colleagues. This erosion of trust can harm workplace culture and hinder productivity.
To paint a vivid picture, imagine a local government office that falls victim to a gift card scam. As a result, they suffer immediate financial losses, and their constituents may lose faith in the office’s ability to manage funds responsibly.
Employees may feel embarrassed or betrayed, further damaging workplace morale and hindering the office’s effectiveness.
The 4 biggest areas of concern with Gift Card Scams
Identifying the areas susceptible to these scams is the first step in protecting yourself and your organization.
1. Your workforce
One of the most significant challenges with gift card scams is more employee awareness.
A well-informed workforce is the first line of defense against gift card scams, yet many businesses need to catch up in this regard. The Association of Certified Fraud Examiners reports that nearly half of all business frauds are detected by tips, mostly from employees.
However, employees can only report what they recognize, making education and awareness training crucial.
2. Inadequate security measure
Even in our digital age, many organizations operate with outdated systems and lax security protocols.
These weak spots make it easier for scammers to penetrate and execute fraudulent schemes. For example, according to Verizon’s Data Breach Investigations Report, 94% of malware was delivered by email, a common method used in gift card scams.
3. Poor vendor management
Poor vendor management can open the door to gift card scams.
Businesses and local governments often work with numerous vendors; without robust controls, scam artists can pose as legitimate suppliers. A case in point is the $100 million scam that hit Facebook and Google, where a fraudster posed as a familiar vendor.
4. Slow incident response
Finally, a slow incident response can worsen the fallout from a gift card scam.
The longer it takes to detect and react to the scam, the greater the potential damage. The Ponemon Institute found that organizations that identified a breach within 100 days saved more than $1 million compared to those that took longer.
Strategies to Prevent Gift Card Scams
Promote Awareness and Education
The first line of defense against gift card scams is awareness. Educating all employees or members of your organization about the potential risks associated with gift card scams is crucial.
This includes sharing information about common scam tactics, warning signs to look out for, and the potential implications of falling victim to such scams.
Implement Robust Verification Processes
Creating and maintaining robust verification processes can significantly reduce the risk of gift card scams. This could involve verifying the identity of anyone requesting gift card purchases, particularly for large amounts, and confirming any unusual or suspicious requests through a separate communication channel.
Enforce Strict Purchase Policies
Establishing clear policies around gift card purchases can also help prevent scams. This might mean limiting the amount spent on gift cards within a certain time frame or requiring managerial approval for all gift card purchases.
The key is to ensure these policies are consistently enforced and regularly reviewed.
Encourage Reporting of Suspicious Activities
Another effective strategy is creating a culture where employees feel comfortable reporting suspicious activities.
Make sure everyone knows who to report to and that there are no negative consequences to doing so. This can help detect potential scams early and prevent them from escalating.
Collaborate with Financial Institutions and Law Enforcement
Working closely with financial institutions and law enforcement can help to detect and respond to gift card scams more effectively.
They can provide valuable advice and resources; if a scam does occur, they can help minimize the damage and hold the perpetrators accountable.
Conclusion: Safeguarding Business Against Gift Card Scams
The ever-evolving landscape of gift card scams presents businesses with various challenges. Understanding these scams and their impact is essential for maintaining the integrity of companies and safeguarding financial and reputational assets.
Implementing best practices such as comprehensive employee training, strong cybersecurity measures, rigorous vendor vetting, and an effective incident response plan is crucial in fortifying businesses against these threats.