Guest Column | March 4, 2021

Prevention Always The Channel's Best Cybersecurity Medicine

By Frank Vitagliano, CEO, Global Technology Distribution Council


Fraud is alive and too well in society.

It’s also alarmingly entrenched in the IT channel.

To VARs and other types of solutions providers, the consequences of inaction or inadequate cybersecurity measures can be catastrophic. Reputations and partnerships are at stake, along with the potential for massive business losses — as well as regulator and financial liability.

Fraud is never a victimless crime. Keeping channel companies ahead of the curve and as prepared as possible is the intent of a new report our organization, the GTDC, just released: Fraud Risks and Prevention in the Channel.

The COVID-19 pandemic has severely impacted businesses around the world. Many of the most fortunate companies modified their operations to enable staff to work from home. Others shut down due to government health and safety mandates or out of an abundance of caution … or lack of business prospects to sustain them.

In this environment with proliferating and converging demands unrelated to cybersecurity, vigilance is the primary imperative. Fraud Risks and Prevention in the Channel, which was independently produced by Channelnomics, identifies eight criminal techniques on the rise or of heightened risk for solutions providers today:

  • Business Email Compromise (Bec)
    This is where many cybercrimes begin – and may seem to never end. BEC threats also extend to text messaging and messaging apps such as WhatsApp. BEC attacks happen when an email or messaging system is compromised or spoofed to send fake messages through legitimate channels. BECs can initiate fake purchasing requests, payment instructions and redirects, refunds, and shipping address changes … all among the illicit approaches to get money or product from businesses – including solutions providers.
  • Phishing Attacks
    Phishing is a well-known and common attack vector against businesses. Fraudsters target companies with seemingly legitimate emails yet with links that open back doors or download malware to compromise systems. In attacks against solutions providers, fraudsters first compromise a customer’s email system, then may send fake orders to an address of their choosing. If successful, the solutions provider and/or customer may end up on the hook for the expense
  • Email Spoofing, Typosquatting, And Account Impersonation
    Rather than compromise email accounts and websites, some fraudsters will impersonate their targets through email spoo­fing or account impersonation. Email spoofi­ng is when an email address looks legitimate but is slightly different from an authentic account. Typosquatting and account impersonation are the same, except the URLs have slight variations. The recipient of a spoofed email receives a message that looks authentic, but it leads back to a fake website. The solutions provider can then be tricked into accepting orders or revealing fi­nancial details.
  • Shipment Redirection
    If fraudsters gain access to a customer’s records, they can identify orders in progress and submit instructions to redirect shipments to a different address. In many cases, a simple Google address search will reveal that the new address is for a home or an unassociated business.
  • Payment Redirection
    Fraudsters send customers “updated” payment instructions so they will send money for legitimate bills to the wrong address. In these cases, the customer loses money and still owes the balance to the solutions provider. Payment redirects most commonly occur as a variant of BEC fraud attempts, where the root cause is a hacked email account. Basic email security protocols can decrease the risk of email account compromises. Robust due diligence processes with controls for processing vendor AP banking change or setup requests mitigate payment redirects.
  • Fake Purchase Orders
    One of the most common fraud schemes in the channel is the use of fake purchase orders. Fraudsters will send a purchase order to a solutions provider that looks legitimate in every way, except for differences in details and purchasing patterns. Fraudsters will often submit fake POs with new shipping addresses. They’ll often place orders for products that the real customer either has never ordered or ordered in different quantities. A strong telltale sign is when a PO has a different shipping address and comes with a request for priority ful­fillment. Without validating the order with the known customer point of contact, solutions providers run the risk of processing the request.
  • Fake Orders
    Like fake invoices, fake orders are product or service requests that appear legitimate. Fraudsters will submit orders via email, by phone, or online. By not verifying an order, solutions providers can get stuck paying for products shipped to the fraudster. Telltale signs of a fake order include a new address, an unusual volume of ordered products, and product selections that deviate from typical buying patterns.
  • Fake Invoices And Payment Details
    Under this scheme, the solutions provider receives a seemingly legitimate email containing either an invoice or payment details for services rendered. If a solutions provider isn’t careful, it could make payments to a fraudulent bank account or worse, reveal its banking credentials to a criminal organization.

Distributors A Strong Force Against Fraud
The threats outlined above warrant a variety of prevention strategies and tactics. One that may not immediately come to mind pertains to distribution partnerships, which are typically critical to any solutions provider’s success.

Over the decades, these alliances have evolved well past the availability and delivery of comprehensive product and solution orders. Numerous distributor services have emerged and become mainstays. For a deeper understanding, check out the GTDC’s 2021 Outlook report encompassing new developments in cloud, collaboration, and XaaS as well as other digital transformation drivers.

Awareness is paramount, of course, when it comes to fraud detection and prevention, but communicating and addressing such concerns with distributors can go a long way on this front.

By employing a system of checks on orders to ensure legitimacy, distributors save much pain and liability for solutions providers and their customers. In many cases, distributors will work with victims to resolve and recover from fraud, theft, and security breaches.

AI And Machine Learning Advantages
Increasingly with the assistance of machine learning and artifi­cial intelligence, distributors will check solutions provider orders against account histories, purchasing and delivery addresses, products sold, credit and spending patterns, and the associated customers’ identities. Such systems enable distributors to flag suspicious orders for veri­fication.

Distributors have established their own fraud prevention teams and systems as they’re at risk of the same lost business, reputation damage, and fi­nancial liabilities as solutions providers. Nevertheless, distribution’s fraud detection and mitigation measures have limits. They work best when solutions provider orders deviate from the norm. Orders from authorized, yet compromised, accounts will be processed like any others. The net result: Solution providers are liable for the loss. Safeguarding systems – particularly those used for account records and order processing – is the responsibility of solutions providers.

In other words, now is the time to take full-scale action to protect your company and its customers from the increasingly pervasive tentacles of fraud in the channel.

We already know conditions are more than ripe for cybersecurity threats and attacks. The best medicine will always be prevention, just as it is for controlling and eliminating the spread of viruses and bacteria. Neither can be completely eliminated, but we can all be less vulnerable with the right types of responses, controls, and commitment … together!

About The Author
Frank was named the chief executive officer of the Global Technology Distribution Council in April 2019. He focuses on strengthening partnerships between members and vendors by addressing industrywide issues and opportunities related to the essential role of distribution in the IT channel. GTDC members drive more than $150 billion in annual worldwide sales of products, services, and solutions through diverse business channels.

About The GTDC
The GTDC is the industry consortium representing the world’s leading tech distributors. GTDC conferences support the development and expansion of strategic supply chain partnerships that continually address the fast-changing marketplace needs of vendors, end customers, and distributors. GTDC members include AB S.A (WSE: ABPL), ABC Data, Almo Corporation, Arrow Electronics (NYSE: ARW), CMS Distribution, Compuage Infocom Ltd. (NSE: COMPINFO), Computer Gross Italia (MI: SES), D&H Distributing, ELKO, Exclusive Networks, Ingram Micro, Intcomex, Logicom (CSE:LOG), Siewert & Kau, SiS Technologies (HKSE: 0529), SYNNEX (NYSE: SNX), Tarsus, Tech Data (NASDAQ: TECD), TESSCO Technologies, Inc. (NASDAQ: TESS), TIM AG and Westcon-Comstor.