10 Outsourcing Fraud Techniques You Should Watch Out For
<p>Outsourcing can be risky but forewarned is forearmed. Make sure you are familiar with these fraud techniques. This way you’ll know how to avoid them.</p>
Software development outsourcing has a wide range of advantages. Cost and time savings are just a few of them. However, it is a risky decision to make for any business. Fraudulent companies constantly invent new ways to scam clients out of their money. There is a common saying, forewarned is forearmed. That’s why this list is essential reading for everyone thinking about outsourcing.
1. Dishonest Developers
Not all companies have ill intentions in mind. Sometimes they lie about their experience, the number of employees they have or their skill sets. As a result, they begin a project for which they don’t have the necessary resources to finish. After they encounter a roadblock, they start missing deadlines and sometimes vanish entirely.
Background checks are necessary when choosing business partners. It’s possible to fake the resumes and portfolios, so research through various channels. For example, websites like clutch.co have verified testimonials available, that are handy when checking the reputation of the provider.
2. Down Payment Scams
Wherever upfront costs are a standard practice this technique is widespread. Since many software development models imply down payments are necessary, it’s not that difficult to come across this.
The scam itself is fairly straightforward. You agree on a deal with the partner, pay them some money so they start working, and you never hear from them again. They don’t respond to messages, don’t answer calls, and may even disappear completely from all social media platforms. It’s not always that extreme, sometimes you can even get the “finished” product, but it will almost certainly be of low quality and will miss all deadlines.
If possible, test the team with a smaller project that is less critical. Don’t invest big sums of money into companies that don’t have a proven track record.
3. Faking the Reports
Inflated numbers in the reports is a common practice for many dishonest firms. It is done in order to demonstrate to the client how much work has been done.
For example, a team has two projects. They spend 6 hours working on one and 2 hours working on the other. The clients of both are then told that the entire day was dedicated to their project. As a result, the company gets more money for the work hours from multiple sources. Sometimes the developers outright lie about what milestones have been reached and what features were completed.
To mitigate that risk for the partners, many teams of developers have adopted more agile methodologies. There is time tracking software that displays not only the work time for each separate project but even provides screenshots and the number of key presses. Never be afraid to negotiate for more transparency.
Lack of technical knowledge is often used by companies to sell you products and services that you don’t need. It’s a common tactic across both B2B and B2C markets.
It comes in a variety of ways. Some firms may insist on outstaffing a senior developer for a job that a mid-level specialist can do just as well. Needless to say, the rates you’ll have to pay for the former are higher. Other teams may try to sell you additional features that will take up more development time that someone has to pay for.
To combat that predatory tactic you can get an unbiased independent consultation that will provide a precise estimate of things your project actually requires.
Another way to take advantage of unsuspecting customers is overestimating. They may ask for a larger budget than needed or give themselves more time to work on the project than they actually require.
The problem is that it doesn’t guarantee a better quality of the finished product. Longer times cause productivity to decrease since the developers feel that they can stretch out their work. Don’t forget that you are still paying for these hours.
As mentioned previously, you can hire a company to give you an unbiased estimate. This approach often eliminates the risk of dealing with overestimates.
6. Unnecessary Spending
This tactic often goes hand in hand with the previous point. The budget for the project is needed to pay for the labor and procure tools necessary for the job. However, some companies may spend this money on things unrelated to the task at hand. For example, expensive hardware upgrades or office renovations.
To mitigate the risk of this happening, you should never underestimate the importance of the planning stages of development. Ask for a detailed breakdown of the costs. You should always know where your money will go.
7. Intellectual Property Theft
This type of fraud encompasses a variety of other techniques. It can be patent infringement, trademark or copyright violations, disclosure of trade secrets and so on. For many industries, IP can be even more valuable than the physical product.
The damages IP theft can bring to your business are potentially catastrophic. That’s why we have written an article with a deeper look into this topic.
8. Stolen Ideas
Ideas have value too. They have the potential to develop into complete projects that will bring you profit. Since the ownership of an idea is almost impossible to prove and many companies take advantage of that.
To lower the chances of your ideas being stolen always sign non-disclosure agreements (NDA) before sharing sensitive information. However, you need to make sure it is enforceable in case of a breach.
9. Information Leaks
It’s important to point out that data leakage can happen without ill intent, but through negligence alone. For example, a device with sensitive information can be stolen or lost. But some companies take full advantage of vulnerable systems and use them for their profit.
All employees that have access to valuable data should be proficient in information security. Only use the secure protocols when transferring data, store encrypted copies on physical drives, and never forget about NDAs. These are the basic preventative measures that every business should adopt.
10. Identity Theft
When you outsource you have to share some personal information, for example, the details of your bank account. As a result, some fraudulent firms may use it in order to steal money from it or use your data to scam more people. Stolen identities can be used for financial gains or for business interests. For example, faking the testimonials.
Additional security measures need to be in place if you provide your partners with access to databases and CRMs. This can not only endanger your clients but also deem your company as unreliable.
Now that you know what to look out for while outsourcing you can do business in a more secure way. Always take precautions. However, no matter how safe you are there is still a risk of being scammed. That’s why you should know how to deal with outsourcing fraud if it happens to you. Make sure to read our article covering this problem.