Telecommunications fraud is sometimes referred to as telco fraud or telecom fraud, and it refers to any type of activity which is intended to abuse or gain some kind of advantage over a telecommunication company using fraudulent practices.
There are many different types of telecommunications fraud, some of the more notable ones being interconnect bypass fraud, and International Revenue Sharing Fraud (IRSF), in which criminals abuse established premium phone rates.
Some of the other most commonly used telecommunications fraud practices are described below, along with what can be done to prevent them. When it comes to fraud detection and prevention in taxes, you can consult with the expert tax advisors at this page.
International revenue-sharing fraud (IRSF)
This type of fraud takes advantage of Premium phone rates and induces unwitting users to then dial those phone numbers. It is easily the largest fraud challenge in existence for telecom operators, routinely costing the industry somewhere between $4 billion and $6 billion every year.
It works like this: an unlicensed agent will sign up to lease a premium phone number, and they break into a business phone system so the calls can be made to that number. The business will then pay as much as $1, and 25% of that cost ends up going to the fraudster.
Businesses frequently find themselves with enormous phone bills which include calls they just didn’t make. Many times, this happens after normal work hours, and the company doesn’t realize that fraud has been perpetrated until they get the bill for those calls.
This is a very difficult process to prevent because there is so little regulation in this area. The best a company can do is monitor all calls on a daily basis to make sure they aren’t being duped by a fraudster.
Interconnect bypass fraud
This is sometimes referred to as SIM box fraud, and it uses a termination rate in order to have cheaper phone calls. It’s estimated that this type of fraud is perpetrated on telecom operators to the tune of $2.7 billion every year.
Fraudulent agents can reroute international calls using a SIM box or a GSM Gateway and hijack the connection in order to get cheaper termination rates. In essence, this enables the fraudster to make long-distance much more cheaply and then keep the difference in their pocket.
This is another difficult fraud to detect while it’s actually happening, although one indicator will generally be that the quality of these calls is inferior to what you’d expect from a standard international call.
Traffic pumping
This is sometimes known as access stimulation, and it’s a practice where local exchanges hide the numbers of any calls made to their networks, so they can benefit from FCC compensation fees.
According to the Telecommunications Act of 1996, telecommunication companies such as AT&T, Verizon, and Sprint are obliged to pay rural carriers certain fees, so these carriers go all out to boost the number of calls in order to get larger payouts. The best way to detect traffic pumping is to monitor compensation fees that are claimed by rural carriers, and to investigate anything suspicious.
Telecom arbitrage fraud
Arbitrage is the practice of benefiting from price differences between long-distance countries. As is the case with international bypass fraud, the international cost can be lower, and it can also open the door to fraudulent companies who inject themselves between operators.
These fraudulent companies claim to connect directly between two countries, whereas they actually go to a cheaper rate country to make the phone call. All long-distance calls should be monitored, particularly when there’s a significant difference in the long-distance rates between countries
PBX hacking
This practice allows fraudsters to gain control of certain phone lines by means of exploiting phone networks that are not secure. A private branch exchange (PBX) is a phone network that connects to external networks. This allows companies to share lines and lower the cost of phone numbers needed in an office setting.
Because most of these PBX’s have IP addresses, they are an inviting target for fraudsters. Criminal-minded persons will log into the system and use it for instance to commit IRSF fraud. This is actually a cybersecurity issue that can be avoided with better password security and improved internal controls.
Best fraud prevention practices
There are many more types of telecommunications fraud that are perpetrated annually, but the most costly ones in terms of dollars are identified above. When considering prevention techniques, the things that are typically most successful in rooting out telecommunications fraud are the following:
- protecting business revenue to the greatest extent possible
- investigating and filtering out unsavory or unscrupulous resellers
- making sure that customers and users are legitimate, and that they are actually who they claim to be
- using modern technology to identify fraudsters and to detect when frauds are being perpetrated. Some of the most useful technologies are device fingerprinting, data enrichment, and machine learning, all of which can contribute to rooting out telecommunications fraud.