No matter the size of your business, fraud is a serious issue and could bring down your entire company. A recent study conducted by the Association for Certified Fraud Examiners (ACFE) found that businesses lose an average of 5% of annual revenue due to fraud committed by employees, managers, owners and executives. In the age of digital expansion and remote work becoming the new reality, combating fraud should be a top priority for any business.
Here we will review the most common types of business fraud and then address steps and resources you can use to combat business fraud.
Types of Fraud
Some of the most common types of business fraud are identity theft, payroll fraud, money fraud, asset misappropriation, and workers’ compensation fraud.
Identity theft occurs when someone steals your business’s identity to access your credit. They gain access to this information with financial statements, bank statements, and access to online records.
According to the Association of Certified Fraud Examiners (ACFE), payroll fraud is twice as common in small businesses as opposed to larger companies. Payroll fraud occurs when employees ask for pay advance without paying them back, lied about their hours on timesheets, or have co-workers clock in for them.
Money fraud is the use of counterfeit currency. The most common counterfeit bills are $100 bills and can happen without employees, or even customers, noticing they are exchanging counterfeit money.
Asset misappropriation are activities such as cash skimming (unauthorised individuals collect cash meant for the business before the cash enters the business’ system), check tampering, payroll and inventory scams, skimming from accounts receivables, and reimbursement scams.
Workers’ Compensation Fraud
Workers’ compensation fraud can occur when an employee gets injured outside work and says they got the injury at your business, or they could make up an illness or injury.
How to Reduce Fraud in Your Business
There are several ways to prevent and mitigate fraud from occurring in your business. Implementing these best practices and these fraud prevention services can save you a lot of time, money, and the potential loss of your business.
Know Your Employees
First and foremost, knowing your employees is the most important factor in preventing much of the internal fraud that can occur in your business. Be sure to conduct thorough background checks (police records and social media checks) before you hire employees to identify any red flags. Also, take the time to get to know your employees so you can recognize any changes in behavior or changes in their behavior.
Establish Risk Averse Account Practices
Establishing smart accounting practices can prevent most fraud from occurring by establishing checks-and-balances and automated processes that can also save you time!
Segregation of account functions is extremely important. Don’t have the same individual reconciling your account statements that are also disbursing payroll or paying invoices. Have these types of accounting transactions conducted by separate individuals, or at least have a process of approving transactions by multiple individuals before they are completed.
Establish expense reimbursement automation and tracking processes that require submission of receipts and proof of payment from employees. This will prevent travel and business expense reimbursement fraud. It will also save you time in reviewing travel and business expenses by easily reviewing requests and transactions on a regular basis, so you can adjust spending patterns as needed to save money or educate employees on proper business spending habits.
Automate bill pay and debit payments so you can control outgoing payments while saving time from conducting these transactions individually. You can easily and securely set up these routine transactions online and monitor them, including setting up alerts on your accounts to let you know when something unusual happens on your account. Discuss these options with your banker to understand how payment automation and account alerts can help your business.
Finally, establish a daily and monthly account monitoring process. This will keep employees accountable and provide you early detection of any unusual transactions.
Publish Accounting and Fraud Policies
Take the time to develop and publish your business account processes and fraud policies. Be clear on who is accountable and the penalties for fraud. Educate your employees on best practices in preventing fraud such as:
- Segregation of account process: Clearly outline roles and responsibilities of employees, including their access levels to information and online account systems.
- Money fraud education: To combat the risk of accepting counterfeit bills, educate employees on how to spot legal currency, like raised printing, microprinting, watermarks, and color-shifting ink.
- Clearly state consequences: Be sure that your fraud policies include the consequences associated with committing fraud, including termination and/or legal actions. Also promote the practice of honest employees being able to report when they see or identify fraudulent activity without the fear or retaliation.
Encrypt Email and Protect Passwords
In the age of digital, protecting your online financial information and transactions requires a few simple steps. First, be sure that all your emails are adequately encrypted. This can protect sensitive information being sent and received via email. Also establish best practices for using passwords, including not writing down passwords or using overly simple passwords that can be easily guessed.
Financial Services Products That Combat Fraud
There are several financial services products available to protect your business against fraud while providing efficiency and cost savings.
Use ACH and Positive Pay services to reduce the risk of check and debit fraud. Using ACH services to send and receive money electronically (versus using checks) removes the risk of check fraud and provides you an easy way to quickly monitor the flow of funds in and out of your accounts. Positive Pay services adds an extra layer of review of checks or debits being processed through your accounts so you can ensure the appropriate amounts are being sent out and who is being paid.
Online Banking and eStatements provide a secure way to monitor your accounts and conduct transactions anywhere, anytime. This means that you are in control of what is happening to your accounts and managing what access your employees have to your account information, and the level of authorization they have to conduct transactions for your business.
Remote Deposit Capture enables you to submit checks for deposit from the security of your home or office, reducing the risk of your account information being compromised through trips to the bank. You save time and money by having faster access to deposited funds, and you help protect the account information of your clients providing you checks for payments by securely processing the checks via an encrypted online service.
With Merchant Services, you reduce or eliminate the need to accept cash or checks for payment. With the encrypted security and fast access to funds in your business account, accepting credit and debit card payments will enable increased cash flow and allow you to better monitor your sales.
Review Your Protection Options Today
Talk to a banker today to review your account and access options. Your business is ever evolving and we are here when you need us.