Digital Skynet - IT Outsourcing Risks | Digital Skynet

How to Deal With Outsourcing Fraud

September 13, 2019
#Outsourcing #Tips

There is a misconception that IT outsourcing risks overshadow its benefits. To debunk this myth we’ll educate you on how to avoid them and recover if they happen.


All types of outsourcing have their own advantages and disadvantages. One of the most common concerns the clients have is the legitimacy of the provider. It is easy to understand why. Such a decision has the potential to change the course of business for companies of any size to make, from small startups to huge enterprises. What brings humongous benefits often comes with substantial risks. Nobody is ever fully protected from them. Even if you take all precautions there is still a chance someone out there will invent a new scheme to get you. The best you can do is being cautious, aware, and prepared. That’s why we want to offer you a look based on some unfortunate experiences of our clients with their past unreliable software development providers.


Types of Outsourcing Scams


As we have mentioned, scammers are very inventive. Therefore, it’s impossible to compile an extensive list of all the ways you can be conned. Still, a vast majority of them fall somewhere under the banner of these four most popular options.


Dishonest Developers


Sometimes development teams just don’t have enough of the right experience and take on the projects which they can’t deliver. They usually don’t maliciously intend to scam you out of money though. It’s often the case of overestimating their own skills. When faced with their technical or knowledge limitations they either miss deadlines or disappear completely in the worst-case scenario. Situations like these illustrate the importance of research but remember, that resumes and portfolios can also be faked. Ask for demos and personal interviews. 


Down Payment Scams


Despite it being as old as the concept of money, this con is still very widespread in all kinds of business sectors where down payments are standard. Once the company receives the money it bails on the project entirely. The work is not delivered and you can’t reach them again no matter how hard you try. It’s not that uncommon for the company to disappear from all platforms only to “reopen” under a new name. To make sure that the team is trustworthy, don’t rush to pay them (especially if they seem to be rushing to get your money), check how long they have been on the market, and, if necessary, test them with smaller projects with shorter deadlines.


Faking the Reports


A fraudulent company may artificially inflate the amount of work that is being done. It can fake the number of hours spent on the project, lie about what tasks have been completed, and overall deceive the client on all indicators. To avoid that, most of the current trustworthy software development companies adhere to the Agile methodology of development. It has different subtypes such as Scrum, Kanban, and so on, so check with the potential partner what model they use.


Why is it important? It is transparent and the client gets a degree of control over the entire development process. You can follow along, suggest new features, and ask to see the development versions of the project. Some companies, like Digital Skynet, have unbiased systems compiling the reports based on accurate data with no way of tampering.


Upselling


Some companies take advantage of your lack of knowledge. Unfortunately, many organizations not only don’t consider it a scam but don’t see it as unethical at all. Vendors like that will often try to convince you to purchase services that you don’t really need.

For example, outstaffing a senior developer for higher rates when a mid-level developer would completely suffice. The difference between medium and senior developers are largely subjective. A mid-level coder is in most cases just as fluent and efficient with the technology they use, while senior ones often just know more of them. If your project requires only the .NET stack of technologies, for instance, there is no need to overpay extra for the Ruby on Rails and Python skills that you will never use. You can get a consultation with unbiased professionals that will tell you exactly what your project needs.

There is also a practice called MVP. It stands for a minimum viable product. When the developers are estimating the cost of your project this number will reflect the cost of the software that will fulfill your requirements. You can request additional features of fancy design after the fact or during the development but if a company offers MVP development the chances of upselling will also be minimal. 




Book a free consultation and we’ll help you make the best choice for your business.


How to Get Your Money Back


One of the main dangers of outsourcing to foreign countries is the different jurisdiction and governing law. An official contract doesn’t always guarantee the legitimacy of the deal. It can be extremely complicated to hold a party that doesn’t deliver on the terms accountable. That’s why most people who have been scammed don’t seek legal action. Hiring a local lawyer is tricky and the court systems often move at a glacial pace.

However, that doesn’t mean that you can’t get your money back. If you have made the payment through your bank then you have 60 days to file a complaint. It’s not an easy process, but it’s always worth considering. Paypal also offers dispute filing, but the chances of obtaining a successful refund are slimmer.

That’s why you should always be cautious when companies offer you unfamiliar payment services. The vast majority of them don’t offer refunds. So when your money is gone there is nothing you can do to get it back. Consider it a price for a lesson learned.


Intellectual Property Security


Monetary losses aren’t the only damage an outsourcing fraud can inflict. Ideas and data have value too. Loss of confidential information is catastrophic to any business and often leads to future losses. That’s why intellectual property security is just as important as financial assets.

In order to mitigate these IT outsourcing risks, the non-disclosure agreements (NDA) became the standard practice in most reliable outsourcing companies. However, it’s not always simple. It should be explicitly specified which governing law and jurisdiction are applicable in case the agreement is breached. If you have any doubts, never be afraid to negotiate. In fact, since global business becomes more widespread the international NDAs have also become commonplace.




How to Avoid Outsourcing Fraud in the Future


First of all, don’t advertise publicly that you need developers for your project. Most of the responses you will get could be legitimate businesses, but the chance of getting scammed is way higher. Instead, do some research on your own and reach out to trustworthy companies yourself. 

In order to find out whether or not the outsourcing firm can be trusted, check the available information on the internet. Gather as much information as you can about the firm that you want to partner with. Here are a few essential things you should never forget:

  • Look through their website. If a company doesn’t have one it is a major red flag. 
  • Read their testimonials. See if they have any reputable clients.
  • Contact them directly via an online call. Learn more about them while evaluating their communication skills.
  • Ask the representative about their development process. Be wary if it seems too vague and don’t be tempted by low prices.
  • Ensure that they offer legitimate contract agreements and inquire about warranties. Don’t sign anything prematurely.
  • Demand regular detailed reports and multiple estimates in written form. A payment schedule and an exit strategy should be arranged in advance. 

Conclusion


Keeping this checklist in mind will help you prevent losses to fraud and mitigate IT outsourcing risks in the future. Yet, shady software development outsourcing providers can always find new schemes. That’s why you should always think critically. At least now you know how to deal with such situations if they happen to you.

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