6 Critical Risks for Design Professionals
The Risk List is presented by:
Call it spear phishing, social engineering or business email compromise. This type of scheme has gotten plenty of coverage in recent years — when fraudsters posing as the boss or a vendor, or client convince an authorized employee to wire transfer funds to a fraudulent account, never to be seen again. Historically, it’s been a form of fraud that offers a quick payout and requires little work on the part of the perpetrator.
But now the thieves are changing their tactics.
“The methods used to perpetrate these fraudulent events are evolving. The fraudsters are investing more effort in orchestrating them, as the payouts can be significant. The targeted “windfall” has expanded too. No longer is it limited to a transfer of funds. We’re now seeing schemes resulting in the fraudulent transfer of tangible property,” said Patricia Barrett, Vice President and Head of Fidelity, Starr Companies.
Criminals are setting their sights on a company’s goods, not just their cash.
To pull that off, thieves use a hybrid of traditional fraud and sophisticated cyber tactics. Through hacking and malware, they can spy on a company’s operations, gathering valuable intelligence on executives and employees. Then they use social engineering tactics to trick workers into unwittingly sending a shipment of products their way.
The experience of one small business — a distributor of small electronic devices — demonstrates how easy it is to fall victim to this type of theft. To sell its products, this company relied on its executives traveling to trade shows throughout the year, often for weeks at a time.
A fraudster, posing as a prospective customer, sent a link in an email to the company’s sales department. Once opened, the link set loose malware that allowed the perpetrator to “lie in wait,” watching the moves of company insiders. The fraudster knew who was scheduled to travel, when, and what type of property the traveler would need to have delivered. The fraudster knew the vernacular used by traveling executives, and what the protocol was for change requests.
Back at the office one day, an employee received an email that appeared to be from the chief executive. “Joe, the trade shows are going really well,” he said, “In fact, I’m down to less than a dozen mobile devices; I’m likely to run out before reaching my next stop.” He instructed the employee to send an additional shipment of electronics to the location of the next show in Las Vegas.
But there was a wrinkle. He’d had to change some travel plans and would no longer be staying at the conference hotel. He booked a room at the hotel across the street. He asked the employee to direct the shipment there instead.
Everything about the request made sense. It was feasible that the executive might need more products. He stated correctly where the next show would be. There was no reason to doubt that he had decided to switch hotels.
“The employee never questioned that the instruction came from the chief executive, so he transferred that property to the hotel and the entire shipment was lost,” Barrett said.
Executing this theft requires in-depth knowledge of a company’s hierarchy, business processes, and of the employees themselves. Because the potential payout is so large, these fraudsters often spend months gathering information before hitting “send” on that fraudulent email.
Malware is often part of their intel-gathering and may be introduced through social engineering. A phony email asking an employee to click a link or download an attachment could be all it takes to get a virus into the system.
By gaining access to the company’s network, thieves can examine billing systems, transaction records and vendor lists, getting a sense of what a normal transfer of goods looks like and who performs them. They can even obtain the executive’s travel itinerary.
They can also glean personal details and communication styles easily from social media.
“The target employee may have posted that he left work early Friday afternoon to attend his son’s baseball game. The copycat executive in the fraudulent email might ask, ‘How was your afternoon off? Who won the game?’” Barrett said. “It builds familiarity. The employee wouldn’t suspect that anyone else would know that level of detail.”
Email is not the only way to perpetrate this type of fraud, however. Criminals can be just as convincing over the phone.
At one organization, the Accounts Payable department received a call from one of their purported vendors, stating that the vendor had consolidated some banking relationships and needed to change the account listed on their contract.
The accounts payable employee sent a change form to an email address provided by the caller. She did not check the master vendor file, but trusted that the email given to her was correct. She did not phone the vendor at a previously verified phone number to validate the request. The caller posing as a vendor sent back the updated form within 15 minutes, and the change was initiated.
The organization proceeded to make three payments to the fraudulent account totaling $700,000. The mistake was not discovered until the real vendor followed up, asking why their payments were delayed.
“The payments slipped through because this was a multi-million-dollar business relationship; and it was not uncommon for them to transact significant business in a short period of time,” Barrett said. “The same tactic could be used to make change orders, diverting a shipment of inventory.”
“Though several insurers will consider providing coverage for fraudulent impersonations that result in a loss of funds, a coverage gap still remains for a loss of other tangible property,” Barrett said.
As with the loss of funds, recovering the stolen property in most cases is next to impossible.
“Once discovered, the trail can go cold very quickly,” Barrett said. To recoup the loss, insureds may have to navigate the intersection of crime, fidelity, cyber, and professional liability coverages.
As cyber criminals grow more sophisticated, calculating and patient, companies need solutions that fill in those gray areas so prevalent in the world of cyber threat and fraud.
Starr Companies crafted an endorsement to its crime and fidelity coverages that covers the loss of other tangible property, in addition to loss of funds, resulting from fraudulent impersonation scams.
“The expanded Fraudulent Impersonation endorsement allows a company to secure coverage for loss of funds and loss of other tangible property; The endorsement is flexible in its structure. This allows the coverage to address the risks that are of most concern to a company. Whether the company is concerned about a loss of funds, a loss of other tangible property, or both the endorsement can be crafted to meet that company’s interests,” Barrett said.
It is widely recognized that one of the best defenses against social engineering risks is education at all levels of a company.
With that in mind, Starr’s Fraudulent Impersonation endorsement is accompanied with the offer of the Starr Companies-KnowBe4 Risk Management Program. KnowBe4 is an internationally recognized IT security firm. This program provides valuable risk management tools to assist in reducing the risk to fraudulent impersonation (social engineering) losses. The downloadable documents are designed to be circulated to employees at every level of the insured company/organization. This program is offered by Starr Companies at no cost to the insured. Upon binding, the Insured company will receive an information packet with instructions on how to access an exclusive area of the KnowBe4 website.
“We believe that the combination of this risk management program and the insurance protection is a winning one for businesses of all types and sizes,” Barrett said.
“Our knowledge and expertise enable us to connect clients with expert resources and to tailor coverage to meet each client’s particular exposures and buying needs,” Barrett said.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Starr Companies. The editorial staff of Risk & Insurance had no role in its preparation.
One of my first jobs was actually at a local insurance agency when I was a high school student, before I had any idea I was going to get into insurance. After college, I was a claims analyst at Sunbeam.
R&I: How did you come to work in risk management?
I fell into it after college, where I studied international business. I had a stack of resumes, and Sunbeam came to Florida from Rhode Island, so I applied. I interviewed with the director of risk management and just stuck with it and worked my way up.
R&I: What is the risk management community doing right?
Getting a holistic view of risk. Risk managers are understanding how to get all stakeholders together, so we understand how each risk is aligned. In my view, that’s the only way to properly protect and serve our organizations.
R&I: What could the risk management community do better?
We’ve come a long way, but we still have to continue breaking down silos at organizations. You also have to make sure you really understand your business model and your story so you can communicate that effectively to your broker or carrier. Without full understanding of your business, you can’t assess your exposures.
R&I: What was the best location and year for the RIMS conference and why?
Being on the East Coast, I like Philadelphia.
R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?
Organizations understanding their cyber risk exposures and how this line of insurance can best protect them. Five to ten years ago, people shrugged it off as something just for technologies companies. But you can really see the trend ticking up as a must-have. It was always something that was needed, but people came to their own defining moments as we got more involved in electronic content and social media globally. Cyber risk is inherent in the way we do business today.
R&I: What emerging commercial risk most concerns you?
The advent of security and contractual obligations. These are concerns as we all play a part in this big web of a global economy. There’s that downstream effect — who’s going to be best insulated at the end of the day should something transpire, and did we set the right expectations?
R&I: Is the contingent commission controversy overblown?
I think so. At the end of the day, it’s all about the transparency you’re getting from the people you work with. I think some best practices in transparency came out of the situation, but we were working on a fee basis, so it wasn’t as much of an issue for us as it may have been for other companies.
R&I: Are you optimistic about the U.S. economy or pessimistic and why?
I’m cautiously optimistic. We seem to be stable in terms of growth, and I’m hoping that the efficiencies and the economies of scale we achieve through technology will benefit us. But I’m also worried about the impact that could have on the number of jobs globally.
R&I: Who is your mentor and why?
Robert O’Connor, my former director when I was first on-boarded at Sunbeam, gave me so many valuable tidbits. I’ll call him to this day if I have an idea I want to bounce off him. He’s a good source of comfort and guidance.
R&I: Of what accomplishment are you most proud?
I have two very empathetic, healthy and happy boys. Eleven and soon-to-be 14.
On the professional side, there were a lot of moments during my career at Citrix where we were running a very lean organization, so I had the opportunity to get involved in many different projects that I probably wouldn’t have had in other larger organizations.
R&I: What is your favorite book or movie?
My favorite movie is Raiders of the Lost Ark.
R&I: What’s the best restaurant you’ve ever eaten at?
A place in Santa Barbara called Bouchon.
R&I: What is the most unusual/interesting place you have ever visited?
Caverns in Gatlinburg, Tennessee. They were interesting. It was cool to see these stalagmites and stalactites that have been growing for millions of years, and then just above ground there are homes from the 1950s.
R&I: What is the riskiest activity in which you’ve ever engaged?
Riding on the back of my husband’s Harley.
R&I: What about this work do you find the most fulfilling or rewarding?
I like educating people and helping them find their ‘aha’ moment when you highlight areas of risk they may not have thought about. It allows people to broaden their horizons a little bit when we talk about risk and try to explore it from a different angle. I try not to be the person who always says “No” because it’s too risky, but find solutions that everyone is comfortable with given a risk profile.
R&I: What do your friends and family think you do?
I tell my kids I protect people and property and sometimes the things you can’t feel or touch.