Financial Self Defense – 6 Strategies To Prevent Fraud In Business
Small businesses and start-ups often have limited resources. They must use these wisely to survive challenging economic circumstances and become bigger and better. Most entrepreneurs focus on the bigger picture and prioritize profit revenue and client management over everything else. But this is what scammers count on this.
Simply put, business fraud is the illegal practice of deceiving an organization or business owner for financial gain. Fraudsters study businesses to identify vulnerable areas they can attack as soon as they see an opening. Unfortunately, most companies underestimate the importance of safeguarding their businesses and instead invest resources in growth, survival, and innovation. They often deem risk management an unnecessary expense or fool themselves into thinking they won’t come under fire. But business frauds most commonly occur within organizations by staff members, vendors, or even clients. Recovery from such scams can result in significantly higher costs. Therefore, it’s better to take preventive measures and protect yourself from losing the money you worked so hard to attain.
Technology has provided criminals with innovative tools and techniques that make their frauds seem highly complicated. Fortunately, there are still strategies you can implement to reduce the risk of business fraud and keep your organization safe from such crooks.
Here’s our list of the top six approaches that are sure to work.
- Understand your business finances
Business frauds commonly occur when owners don’t understand the company’s finances well enough. Even if you have professionals to handle your accounts, you must have a basic idea regarding how money enters and leaves your business. You can enroll in a Wiley CPA Review crash course and learn all the accounting essentials to gain a better understanding and knowledge.
Keep a close eye on the payment methods employed by your business and learn how each works differently. Ask yourself questions like your current cash position, inflows, and outflows, or if you have any pending debts. Additionally, you must know every staff member who can authorize these payments or checks them for legitimacy. All these actions ensure you are better protected against potential vulnerabilities in the business.
- Review accounts as often as you can
Knowing and understanding the finances is only the first part of risk management. If there’s no one to review these statements regularly, all the knowledge in the world will be worth nothing. Most SMEs review their accounts every three months, but this isn’t enough. It’s better to check your business accounts daily or every other day. Fraudsters only need a minimum window to trick you into handing over your money; a quarter period gives them ample time to do that. Even on days when you don’t feel like bookkeeping, push through, and do a review anyway. Check every transaction thoroughly and look for any activity that jumps at your or seems like an anomaly. If you spot any suspicious payment, investigate it immediately to prevent falling into a trap.
- Identify vulnerable areas
First and foremost, you must accept that your business is susceptible to business fraud, just like every other organization. Understand the principal factors making people and companies vulnerable to scams every day. Organize and develop a structured risk assessment program that identifies all potential risks, enabling you to take necessary actions.
An efficient way to keep your business safe from criminals is to think like one. Imagine possible internal and external frauds and check if your management systems are efficient enough to mitigate them. The globalization of the internet has made cyberspace a popular medium for conducting illegal activities. Therefore, you must pay special attention to your cybersecurity software and tools and ensure they all remain updated and functional.
- Conduct regular audits
Most businesses have routine audits conducted by professionals once a year. An auditor thoroughly examines a business’s financial records, traces them back to their source, and verifies their authenticity. They use a systematic review operation to ensure every accounting book, receipt, and invoice gets validated.
Conduct internal and external audits routinely to monitor operations in your business that deal with refunds, payments, inventory, or product returns. But to keep your business safe from fraud, audits should be a regular part of your organization. Regular screenings ensure any fraudulent activity gets detected in its initial stages before it can infect other parts of the business. If at any time you suspect fraud, you can hire trained professionals to examine and investigate your accounts.
- Know your employees
The Better Business Bureau reports that nearly 30% of businesses fail due to employee theft. In the United States, companies have lost $50 billion yearly because of internal theft. Factors like feelings of entitlement or dishonesty are usually the prevalent causes of this. A breach can occur when employees share confidential documents with third parties or scroll through social media during meetings.
For these reasons, business owners must make a conscious effort to get to know their employees better. Before you hire someone, run efficient background checks and ask them to provide you with references. Communicate with your staff the severe consequences of employee theft and build a company culture that prevents these occurrences in the first place.
- Train your staff
A lack of staff training and inability to recognize fraud from right under their noses makes business fraud even more common. As a business owner, you must train your employees with a comprehensive fraud awareness program that helps them detect any occurrence out of the ordinary. Provide them with relevant information regarding how, why, and who can commit fraud and how it can impact the employees and the organization. Explain to them that if your business experience foreclosure because of fraud, it’s highly likely company benefits or jobs may get lost. More importantly, don’t just overload the staff with theoretical knowledge regarding business fraud. Instead, help them understand it using specific examples so they know precisely what to look for.
Besides detecting business fraud, you must also train employees to report and take necessary actions when they suspect something. Don’t discount the impact this knowledge and training can have on your business. With more staff empowered with relevant information, you can confront scammers much quicker and suffer fewer losses.
When it comes to business fraud, perpetrators don’t discriminate. Whether it’s a small business, a start-up, or a large enterprise—without appropriate safety measures, everyone’s at risk of being their next victim. More importantly, preventive strategies are much more cost-effective than suffering the consequences of fraud. Therefore, implement these strategies now and build a business that can easily deter fraudulent actions.