How Can You Prevent Fraud?
One of the most frustrating aspects of running a business is fraud. Unfortunately, this has been a rising problem for businesses globally. Fraud is incredibly costly and challenging for companies to deal with. Therefore, it is essential that every business, both large and small, invest in measures to prevent fraud from happening in the first place.
Importance of Preventing Fraud
Fraud is a challenge that confronts almost every business all over the world. Unfortunately, all across the globe, fraud has increased in recent years. This is because the global business landscape is more complex than ever. With a variety of payment options occurring at all times, it is an excellent opportunity for fraudsters to take advantage. Globally, fraud now reaches trillions of dollars a year.
Not only is fraud more common than ever, but it is also incredibly successful. It is estimated that almost half of the fraudsters that go after merchants succeed. These higher costs and risks associated with fraud have forced businesses to increase their prices. In doing so, they risk losing customers due to the price increase.
Your business must take measures to prevent fraud. In recent years fraud has cost businesses here in the US vast amounts of money. Additionally, many companies lose fraud disputes compounding the loss fraud can cause a business. Therefore, it is critical to do everything possible to prevent fraud, as it can be challenging to fight once it occurs. Businesses also benefit from fraud prevention by keeping operating costs and prices low, thereby keeping customers happy.
Types of Business Fraud
There are a variety of fraud types that can impact a business. Asset misappropriation is one of the most common forms of fraud. An employee will misuse assets or steal from the company when asset misappropriation occurs. An employee may also steal funds or make false reimbursement claims.
Financial statement fraud is much less common but much more costly. This occurs when an employee alters the financial documents of a business to take or misallocate funds.
Payroll fraud is another form of business fraud that can hurt a business. This occurs when payroll documentation and details are changed in order to steal funds. Additionally, a company can accidentally commit payroll fraud if they misclassify employees with the IRS.
Methods to Prevent Fraud
Check for Scams
One way you can do this is by ensuring you are vigilant for scams. Double-check and verify any unusual activity.
Businesses must verify customer information as much as possible. It is critical to verify any differences between billing and shipping addresses. Deliveries should include signature requirements to ensure legitimate deliveries.
Get to Know Employees
One easy way to avoid business fraud is to get to know and understand employees. By understanding employees, a business owner can identify trustworthy and not trustworthy. This also makes it easier to tell if an employee is acting suspiciously when committing fraud. Additionally, employees feel more valued and are less likely to commit fraud.
Maintaining a positive working environment with clear lines of communication is critical. Employees feel like they are part of the team and that management is willing to listen to them. In addition, a business must develop a culture of accountability in order to prevent fraud.
Educating employees is critical as they understand the business's operations more than anyone else. By setting up an anonymous reporting system, staff can report any instances of fraud. Employees are essential to prevent fraud; any business must make the most of this potential.
A business may also divide responsibility among employees, making it much more difficult for a single employee to commit fraud.
Documentation and Internal Controls
Documentation is valuable to ensure business operations are recorded. This ensures that discrepancies are recorded and makes it easier to notice differences. In addition, internal controls should be implemented and regularly monitored to prevent fraud.
Effective Business Management and Audits
Those that commit fraud depend on business operators ignoring business management to focus solely on generating revenue. Therefore, it is critical that business management does not slack and provide an opportunity for fraud.
Businesses must conduct routine audits to ensure that no suspicious activity is occurring. It also gives fraudsters a shorter time frame to take advantage of business before they are caught.
Prevent Fraudulent Checks
Any checks that go missing should be reported immediately. There is a limited amount of time for you to prevent fraudulent checks from being cleared, and action needs to be taken as soon as possible.
A business should always pay attention to software updates. Firewalls and antivirus software must be up to date for them to be most effective against malicious software that attempts to take advantage of a business.
Protecting Small Businesses
It is estimated that smaller businesses suffer losses of over $150,000 a year due to fraud. To make this even more daunting is the fact that small businesses are even more prone to fraud than larger ones. This makes fraud prevention even more essential for small businesses.
Credit card fraud is one of the largest sources impacting small businesses. As a result, a business owner must separate their personal and business banking accounts. This keeps your money safer and makes it easier to track expenses. Business operators should also frequently check their bank accounts to check if there is any unusual activity.
Another way a small business can prevent fraud is investing in robust IT security and having a password policy. Ensure that your passwords are complex and are frequently changed to limit the likelihood of them being compromised.
Similar to large businesses, employees need to check and monitor for fraud. Old and new staff need to be able to keep an eye out for fraud. Business owners need to invest in employee background checks to ensure they are hiring trustworthy people. Fortunately, businesses can also invest in insurance that can help cover losses when fraud does occur.
The solutions to prevent fraud with small businesses are similar to those of large companies. Still, small businesses must find affordable solutions that make the most of their limited time, resources, and expertise.