Loss Control Perspectives: Winter Weather Precautions
To learn more about Global Risk Consultants, please visit their website.
To learn more about Global Risk Consultants, please visit their website.
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.
R&I: What was your first job?
Bus boy at a fine dining restaurant.
R&I: How did you come to work in this industry?
I sent a résumé to Harrah’s Entertainment on a whim. It took over 30 hours of interviewing to get that job, but it was well worth it.
R&I: If the world has a modern hero, who is it and why?
The Chinese citizen (never positively identified) who stood in front of a column of tanks in Tiananmen Square on June 5, 1989. That kind of courage is undeniable, and that image is unforgettable. I hope we can all be that passionate about something at least once in our lives.
R&I: What emerging commercial risk most concerns you?
Cyber risk, but more narrowly, cyber-extortion. I think state sponsored bad actors are getting more and more sophisticated, and the risk is that they find a way to control entire systems.
R&I: What is the riskiest activity you ever engaged in?
Training and breaking horses. When I was in high school, I worked on a lot of farms. I did everything from building fences to putting up hay. It was during this time that I found I had a knack for horses. They would tolerate me getting real close, so it was natural I started working more and more with them.
Eventually, I was putting a saddle on a few and before I knew it I was in that saddle riding a horse that had never been ridden before.
I admit I had some nervous moments, but I was never thrown off. It taught me that developing genuine trust early is very important and is needed by all involved. Nothing of any real value happens without it.
R&I: What about this work do you find the most fulfilling or rewarding?
Setting very aggressive goals and then meeting and exceeding those goals with a team. Sharing team victories is the ultimate reward.
R&I: What is the most unusual/interesting place you have ever visited?
Disney World. The sheer size of the place is awe inspiring. And everything works like a finely tuned clock.
There is a reason that hospitality companies send their people there to be trained on guest service. Disney World does it better than anyone else.
As a hospitality executive, I always learn something new whenever I am there.
The risks that Disney World faces are very similar to mine — on a much larger scale. They are complex and across the board. From liability for the millions of people they host as their guests each year, to the physical location of the park, to their vendor partnerships; their approach to risk management has been and continues to be innovative and a model that I learn from and I think there are lessons there for everybody.
R&I: What is the risk management community doing right?
We are doing a much better job of getting involved in a meaningful way in our daily operations and demonstrating genuine value to our organizations.
R&I: What could the risk management community be doing a better job of?
Educating and promoting the career with young people.
R&I: What have you accomplished that you are proudest of?
Being able to tell the Pinnacle story. It’s a great one and it wasn’t being told. I believe that the insurance markets now understand who we are and what we stand for.
R&I: Who is your mentor and why?
John Matthews, who is now retired, formerly with Aon and Caesar’s Palace. John is an exceptional leader who demonstrated the value of putting a top-shelf team together and then letting them do their best work. I model my management style after him.
R&I: What is your favorite book or movie?
I read mostly biographies and autobiographies. I like to read how successful people became successful by overcoming their own obstacles. Jay Leno, Jack Welch, Bill Harrah, etc. I also enjoyed the book and movie “Money Ball.”
R&I: What is your favorite drink?
Ice water when it’s hot, coffee when it’s cold, and an adult beverage when it’s called for.
R&I: What does your family think you do?
In my family, I’m the “Safety Geek.”
R&I: What’s your favorite restaurant?
Vegas is a world-class restaurant town. No matter what you are hungry for, you can find it here. I have a few favorites that are my “go-to’s,” depending on the mood and who I am with.
If you’re in town, you should try to have at least one meal off the strip. For that, I would suggest you get reservations (you’ll need them) at Herbs and Rye. It’s a great little restaurant that is always lively. The food is tremendous, and the service is always on point. They make hand-crafted cocktails that are amazing.
My favorite Mexican restaurant is Lindo Michoacan. There are three in town, and I prefer the one in Henderson as it has the best view of the valley. For seafood, you can never go wrong with Joe’s in Caesar’s Palace.