CHAPTER I

INTRODUCTION

Background of the Study

According to (Raj, 2015) online business is increasing rapidly and creating

new opportunities for merchants, but at the same time creating opportunities for

fraudulent practices. Criminals have tried in many ways to take advantage of the

new opportunities to carry out online fraud against both the sellers and buyers.

Common cyber-based criminal activities such as online fraud and phishing

attacks are now perpetrated through the use of false identity, fraudulent and

counterfeited documents as a result of the increasing reliant on online

transactions(Raj, 2015).

Fraud has the potential to disrupt the activity of any business, be it small

or big. The most obvious way in which fraud can influence a small business

is financial loss. Online Fraud impacts on people, industries, public bodies,

services and the environment and all of these can be irreversibly harmed.

Understanding the total impact of fraud and not just the financial loss allows

public bodies to make better informed decisions. (Business Marketing,(2016).

This increasing number of reported online fraud losses, complaints and

the negative impact of online fraud on businesses and global economies thus

make online fraud a worldwide challenge (Coyne, 2005; Montague, 2011).

Governments and organizations have made different efforts in different areas

such as regulations, monitoring organizations, users, and the use of modern

technology to control the rate of online fraud. The different measures put in place

have however yielded little or no success, as the rate of online fraud still remains

high in most countries and regions. The argument may therefore be that the

measures taken are either not comprehensive enough, inadequate or have failed

to effectively address all the issues of online fraud due to the organizational and

environmental context in the Philippines.

The Philippines continues to face the challenge of effectively addressing

the problem of illegal cyber activity and cybercrime victimization, a challenge it

shares among developing countries in South East Asia and in other parts of the

world. The geography of the Philippines and its present socio-economic

conditions as it continuously works to strengthen political stability and national

security is a perfect condition in which different kinds of illicit cyber activities

flourish. The anonymity in the Internet, the legal and jurisdictional issues involved

in technology-facilitated crimes, and the vast victim and recruitment source and

lure of easy money, motivates a culture of cyber criminality which may later lead

to more serious organized criminal underground. The threat of transnational

organized criminal groups operating in the country poses a serious concern as it

affects the economic and political stability of the country (Cybercrime Prevention

Act of 2012).

This research is therefore aimed at examining the impact of the online

fraud put in place by financial institutions in the Philippines to control and prevent
online fraud in their environmental context. This is with the view of determining

the factors and issues influencing the countermeasures, and the development of

a framework that would facilitate effective control of online fraud in Philippines.

The study was conducted to determine the impact of online fraud to online

business in the control and prevention of online fraud in Philippines especially in

City of Mati.

Statement of the Problem

This study seeks to determine the Financial Effect of Online Fraud to

Online Business in the case of City of Mati. Specifically, the study aims to answer

the following questions;

1. To determine the socio-demographic profile of online business

proprietors in the City of Mati.

2. To determine the financial effects of online fraud as experience by

online business proprietors in the City of Mati?

3. To identify what are the determinants factor for preventing online fraud to

the businesses in City of Mati.

Significance of the Study

Government – To protect your business from online scams, data theft and fraud.
Online Business Proprietors – The effect not only on the standard of living and

quality of life, but also on the environment in which people live.

Future researchers, it would help them explore further studies on the effect of

online fraud business in City of Mati. It would also help them to assess the level

of factors based the result of online fraud business

Scope and Limitations

The study focused on the examination of measures and techniques

adopted by Philippine financial organizations and how these have effectively

controlled or prevented the issues of online fraud in the country. The study is

therefore limited to the countermeasures designed in Philippines to fight online

fraud especially in City of Mati.

Definition of Terms

Financial Effect – an expense that has an an effect on a financial position that

cannot be controlled. Generally, events that have a financial impact change

the financial position of the underlying situation. 

Online Fraud - refers to fraudulent activities such as identity theft and financial

frauds that are committed by using the Internet.

Online business is any kind of business activity that happens over the internet.

Running an online business can include buying and selling online or providing

an online service.
 CHAPTER II

REVIEW OF RELATED LITERATURE

 Provided in this section are the theories, concepts, facts, information,

views, and readings from various authors worldwide related to the effects of

online fraud to online business. The concepts are presented by relevant themes

about the topic under study.

Fraud is a serious, underestimated and unchecked problem. Every public

body is an active target for fraudsters. Unfortunately, public bodies do not always

consider fraud when conducting their activities. Even when fraud is considered,

public bodies can find it difficult to define, measure and articulate the problem

without guidance. In addition, the focus can be too centered on financial loss. In

reality, the impact of fraud goes well beyond this (Agnew DJ, Pearce J, Pramod

G, Peatman T, Watson R, et al. (2009).

The Impact of Online Fraud

Human Impact

Fraud against public bodies is not a victimless crime. Fraud can be a

traumatic experience that often causes real and irreversible impacts for victims,

their families, carers and communities. Those who rely on government services,

such as the elderly, the vulnerable, the sick and the disadvantaged, are often the

ones most harmed directly or indirectly by fraud. Fraud can have a devastating

and compounding effect on these victims; amplifying the disadvantage,

vulnerability and inequality they suffer. Fraud can also cause lasting mental and
physical trauma for victims, and in some cases, take people’s lives (Agnew DJ,

Pearce J, Pramod G, Peatman T, Watson R, et al. (2009).

Government Outcome Impact

Fraud against public bodies compromises the government’s ability to

deliver services and achieve intended outcomes. Money and services are

diverted away from the intended targets and the services delivered can be

substandard or unsafe. This can lead to program failure. It also leads to lost

opportunities for individuals and businesses (Agnew DJ, Pearce J, Pramod G,

Peatman T, Watson R, et al. (2009).

Government System Impact

Fraud drains government resources across multiple areas including

investigations and compliance, prosecution, prison, welfare, identification and

computer systems.

Industry Impact

Fraud against public bodies can result in distorted markets where

fraudsters obtain a competitive advantage and drive legitimate business out. It

can affect services delivered by business and expose other sectors to further

instances of fraud. It can also result in greater burdens on charities and

community services who assist those affected by fraud against public bodies.

Financial Impact
 Based on international estimates, public bodies generally lose between

0.5% and 5% of their spending to fraud and related loss. The majority of fraud is

hidden and undetected and can be difficult to categorize. Calculating the financial

impact can assist agencies understand their potential losses and how to mitigate

them (Agnew DJ, Pearce J, Pramod G, Peatman T, Watson R, et al. (2009).

Business Impact

Business costs for dealing with fraud against government programs are

significant and extensive and go well beyond the direct financial loss. They can

include assessment, detection, investigation and response costs as well as

potential restitution. In addition, further costs can include program review and

audits and retrofitting or redesigning programs (Agnew DJ, Pearce J, Pramod G,

Peatman T, Watson R, et al. (2009).

COMMON SCAMS THAT TARGET SMALL BUSINESS

Fake Invoices

Scammers create phony invoices that look like they’re for products or services

your business uses — maybe office or cleaning supplies or domain name

registrations. Scammers hope the person who pays your bills will assume the

invoices are for things the company actually ordered. Scammers know that when

the invoice is for something critical, like keeping your website up and running,

you may pay first and ask questions later. Except it’s all fake, and if you pay, your

money may be gone (Small Business, 2018).

Unordered Office Supplies and Other Products

Someone calls to confirm an existing order of office supplies or other

merchandise, verify an address, or offer a free catalog or sample. If you say yes,

then comes the surprise — unordered merchandise arrives at your doorstep,

followed by high-pressure demands to pay for it. If you don’t pay, the scammer

may even play back a tape of the earlier call as “proof” that the order was placed.

Keep in mind that if you receive merchandise you didn’t order, you have a legal

right to keep it for free (Small Business, 2018)

Directory Listing and Advertising Scams

Con artists try to fool you into paying for nonexistent advertising or a listing in a

nonexistent directory. They often pretend to be

from the Yellow Pages. They may ask you to provide contact information for a

“free” listing or say the call is simply to confirm your information for an existing

order. Later, you’ll get a big bill, and the scammers may use details or even a

recording of the earlier call to pressure you to pay (Small Business, 2018)

Utility Company Imposter Scams

Scammers pretend to call from a gas, electric, or water company saying your

service is about to be interrupted. They want to scare you into believing a late bill

must be paid immediately, often with a wire transfer or a reloadable card or gift

card. Their timing is often carefully planned to create the greatest urgency — like

just before the dinner rush in a restaurant (Small Business, 2018).

Government Agency Imposter Scams

Scammers impersonate government agents, threatening to suspend business

licenses, impose fines, or even take legal action if you don’t pay taxes, renew

government licenses or registrations, or other fees. Some businesses have been

scared into buying workplace compliance posters that are available for free from

the U.S. Department of Labor. Others have been tricked into paying to receive

nonexistent business grants from fake government programs. Businesses have

received letters, often claiming to be from the U.S. Patent and Trademark Office,

warning that they’ll lose their trademarks if they don’t pay a fee immediately, or

saying that they owe money for additional registration services (Small Business,

2018).

Tech Support Scams

Tech support scams start with a call or an alarming pop-up message pretending

to be from a well-known company, telling you there is a problem with your

computer security. Their goal is to get your money, access to your computer, or

both. They may ask you to pay them to fix a problem you don’t really have, or

enroll your business in a nonexistent or useless computer maintenance program.

They may even access sensitive data like passwords, customer records, or credit

card information (Small Business, 2018).

Social Engineering, Phishing, and Ransomware

Cyber scammers can trick employees into giving up confidential or sensitive

information, such as passwords or bank information. It often starts with a

phishing email, social media contact, or a call that seems to come from a trusted

source, such as a supervisor or other senior employee, but creates urgency or

fear. Scammers tell employees to wire money or provide access to sensitive

company information. Other emails may look like routine password update

requests or other automated messages but are actually attempts to steal your

information. Scammers also can use malware to lock organizations’ files and

hold them for ransom (Small Business, 2018).

Business Promotion and Coaching Scams

Some scammers sell bogus business coaching and internet promotion services.

Using fake testimonials, videos, seminar presentations, and telemarketing calls,

the scammers falsely promise amazing results and exclusive market research for

people who pay their fees. They also may lure you in with low initial costs, only to

ask for thousands of dollars later. In reality, the scammers leave budding

entrepreneurs without the help they sought and with thousands of dollars of debt

(Small Business, 2018).

Changing Online Reviews

Some scammers claim they can replace negative reviews of your product or

service, or boost your scores on ratings sites. However, posting fake reviews is

illegal. FTC guidelines say endorsements — including reviews — must reflect the

honest opinions and experiences of the endorser (Small Business, 2018).

Credit Card Processing and Equipment Leasing Scams

Scammers know that small businesses are looking for ways to reduce costs.

Some deceptively promise lower rates for processing credit card transactions, or

better

deals on equipment leasing. These scammers resort to fine print, half-truths, and

flat-out lies to get a business owner’s signature on a contract. Some

unscrupulous sales agents ask business owners to sign documents that still have

key terms left blank. Don’t do it. Others have been known to change terms after

the fact. If a sales person refuses to give you copies of all documents right then

and there — or tries to put you off with a promise to send them later — that could

be a sign that you’re dealing with a scammer (Small Business, 2018).

Fake Check Scams

Fake check scams happen when a scammer overpays with a check and asks

you to wire the extra money to a third party. Scammers always have a good story

to explain the overpayment — they’re stuck out of the country, they need you to

cover taxes or fees, you’ll need to buy supplies, or something else. By the time

the bank discovers you’ve deposited a bad check, the scammer already has the

money you sent them, and you’re stuck repaying the bank. This can happen

even after the funds are made available in your account and the bank has told

you the check has “cleared” (Small Business, 2018).

 Financial Fraud linked to Covid-19

  INTERPOL is encouraging the public to exercise caution when buying

medical supplies online during the current health crisis, with criminals capitalizing

on the situation to run a range of financial scams. With surgical masks and other

medical supplies in high demand yet difficult to find in retail stores as a result of

the COVID-19 pandemic, fake shops, websites, social media accounts and email

addresses claiming to sell these items have sprung up online. But instead of

receiving the promised masks and supplies, unsuspecting victims have seen

their money disappear into the hands of the criminals involved. This is one of

several types of financial fraud schemes connected to the ongoing global health

crisis which have been reported to INTERPOL by authorities in its member

countries (INTERPOL, 2020).

COVID-19 fraud schemes

Scams linked to the virus include:

 Telephone fraud – criminals call victims pretending to be clinic or hospital officials,

who claim that a relative of the victim has fallen sick with the virus and request

payments for medical treatment;

 Phishing – emails claiming to be from national or global health authorities, with the

aim of tricking victims to provide personal credentials or payment details, or to open

an attachment containing malware.

In many cases, the fraudsters impersonate legitimate companies, using similar

names, websites and email addresses in their attempt to trick unsuspecting

members of the public, even reaching out proactively via emails and messages on

social media platforms.

“Criminals are exploiting the fear and uncertainty created by COVID-19 to prey on

innocent citizens who are only looking to protect their health and that of their loved

ones,” said INTERPOL Secretary General Jürgen Stock.

Conceptual Framework

Researchers have determined four independent variables namely law

enforcement, attitudes awareness, ethics and IT Technology. The researchers

want to study the variables that have significant positive relationship

commitment. Figure below shows a theoretical framework on the relationship

between the independent variables and their correlation with the dependent

variable.

FINANCIAL EFFECT
Know your Customers and
EMOTIONAL EFFECT Suppliers
BUSINESS EFFECT Be Skeptical FRAUD PREVENTION
GOVERNMENT EFFECT Avoid payment first basis
INDUSTRY EFFECT

Schematic Diagram for the Conceptual Framework in the Determinants of

Preventing Cyber Crime

 CHAPTER III

METHODOLOGY

This chapter deals with the aspects of analysis and the review techniques

that are useful for the analysis. It includes the outlines, steps and processes in

attaining the specific objectives of the study. Different methods and tools were

applied and introduced in this study. The research design, research data, and

analysis of data that were used in the study are deliberated.

Research Design

The researchers used the quantitative descriptive design, survey

questionnaires and key informant interview. The survey was conducted by

providing structured questionnaires to a number of respondents from the four

major barangays in the City of Mati. The participants were asked to evaluate the

financial effect of online fraud to online business.

Sources of Data

Primary Data

The primary data used survey questionnaire that was disseminated

in the selected four major barangays of the City of Mati. This includes

those selected respondents in the area to consolidate the ideas in the

gathered information.
Secondary Data

The secondary data came from the internet as the basis of the

researcher’s theories of this study.

Research Locale

The researchers had their distribution of products at 4 selected barangays

of Mati City; Barangay Central, Barangay Dahican, Barangay Sainz and

Barangay Matiao. The numbers of respondents had a brief discussion on what

was the research about and afterward took the survey questionnaire.

Respondents of the Study

This study will be conducted inside the selected business establishment in

the City of Mati and with 400 target respondents only. The researchers will be

going to distribute the financial effects of online fraud in online business survey

form in each business entity.

Mati, officially the City of Mati is a 5th class component city and capital of

the province of Davao Oriental, Philippines. According to the 2020 census, it has

a population of 147,547 people.

Sampling Technique

The researchers used stratified sampling technique to gather on the

statistical analysis. This comprises a total number of respondents that is being

surveyed in four selected barangays in City of Mati.

Sample Size
 Based on the 2010 census of the Philippine Statistics Association (PSA),

the City of Mati has a total population of 126,146. The proponents focused on the

four (4) biggest, most populated and nearest to the plantation which are the

Barangay Central, Barangay Matiao, Barangay Sainz, and Barangay Dahican.

The four barangay has a total population of 68, 540.

Distribution of Respondents

Name of Barangay No. of Respondent

Central 100
Matiao 100
Dahican 100
Sainz 100

Data Collection Procedure

Survey questionnaires was formulated and tested for its validity before it

was distributed to the respective respondents, followed by the distribution of

questionnaires to individuals, who are the target respondents which include

interviews, guided questions or even discussion.

Data Treatment

This study make used of statistical analysis. The data gathered was

tallied, explained and statistically analyzed. The data was fortified in order for it

not to mislead into anything. After putting in order the data, the proponents put in

a graph.
 Republic of the Philippines

DAVAO ORIENTAL STATE UNIVERSITY

Institute of Business and Public Affairs

Guang-guang, Dahican, 8200 City of Mati, Davao Oriental

Research Guide Survey Questionnaire

Good day!

I’m a student of Davao Oriental State University. I am conducting a

research entitled “The financial effect of online frauds to online business in
the case of City of Mati” I am humbly asking you to answer completely my
questionnaire as it helps me to finish my research.

Your participation will make a great contribution to community and I will be

forever thankful for your cooperation.

Yours truly,

ELLEN ROSE D. UGPO

ROTZEL LABRADOR

MARJORIE A. YAMSON

MARIEL RODRIGUEZ

MELODY C. SALENTES

ROTZEL LABRADOR

The Researcher
 SURVEY QUESTIONNAIRE

On

“THE FIINANCIAL EFFECT OF ONLINE FRAUD TO ONLINE BUSINESS”

Part I. Demographic Information

Please provide some information about yourself by checking the response

that best describe you.
Name: (Optional) ___________________
Gender: ___ Male ___ Female
Age:
___ 20 below ___ 31 – 40 ___ 51 – 60
___ 20 – 30 ___ 41 – 50 ___ 61 – 70
Marital Status:
___ Single ___ Married ___ Separated ___ Widowed
Educational Attainment:
___ Elem. Undergraduate ___ H.S Graduate
_ Elem. Graduate ___ College Undergraduate
___ H.S Undergraduate ___ College Graduate
___ Vocational/TESDA Graduate
Household Income:
Below 5,000 __5,000 – 9,999 10,000 – 14,999
___15,000 – 19,999 __20,000 – 24,999 ___ 25,000 – 29,999
___ 30,000 and Above
Occupation:
___ House Wife/ House Husband ___ Student
___ Government Employee ___ Retired
 ___ Self – Employed / Business Owner ___ Unemployed
___ Laborer / Worker / Farmer ___ Others, Specify

Financial effects of online fraud as experience by online business proprietors in the City
5 4 3 2 1
of Mati
1 Financial Impact
2 Psychological Impact
3 Business Impact
4 Government Impact
5 Industry Imnpact

How to prevent Online Fraud 5 4 3 2 1

1 Be Skeptical
2 Know your customers and Suppliers
3 Secure and Protect your Property
4 Always check suppliers feedbacks and reviews
5 Avoid payment first basis
Channels used for scams and fraud? 5 4 3 2 1
1 Email
2 Phone calls (either mobile or fixed line)
3 online advertisements
4 Social media ads
5 Text Scam
Technological Measures Awareness: 5 4 3 2 1
Would you describe your level of awareness of online fraud and how has it affected the
1
combating of online fraud?
2 Do you encounter online fraud?
Do you have technological, systems and procedural measures used to deter, prevent and
3
detect online fraud?
4 Is the focus of these measures in place and how effective have they been?
5 Are these measures adequate enough?
Enforcement Regulations: 5 4 3 2 1
1 Sort of regulation do you have or rely on?
Do you view the government’s regulations to deter, prevent, detect and penalize online
2
fraud?
3 Do you see the regulations in place adequate?
4 Do you see online fraudsters prosecuted?
5 Do you perceive online fraud; do you consider it a criminal activity?
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