Indeed, our world is raging with RFID hackers and identity theft that target people. Despite the size, why wouldn’t you be worried about the likelihoods of business fraud? From the small grocery store to an independent hair stylist, there are many avenues through which scammers can apply their malicious intent, and cheat you.
No doubt, small businesses are exposed to business fraud. Yes, these businesses hire people they trust. But they can’t stop suspicious behavior—even though it’s from their esteemed partners.
Research shows that fraud affects one in four small businesses yearly – with SMEs losing about $25.6 million annually.
That said, small business frauds are occupational frauds, which usually ravage small businesses or start-ups. The Association for Certified Fraud Examiners (ACFE) has it that small businesses are generally more susceptible to organizational fraud than the larger ones.
There are several reasons why these frauds occur, and we shall briefly highlight some of them.
First, most business owners have their hands full and so have to rely on delegation. Here we see employees performing multiple functions. There are usually little or no checks and balances. It allows them to do some illegal stuff.
Second, sometimes business owners become too trusting with employees. It can lead to the absence of formal procedure, which means things don’t get recorded. This situation makes fraudulent activities very easy and mostly unnoticed.
Third, hiring fraudulent individuals can also make your business vulnerable to fraud. The reason is obvious.
We have now seen certain situations that can lead to fraud. It is then vital to look at ways to prevent it. But first, let’s take a look at some of the major fraudulent activities. Knowing this will provide awareness of how fraudsters carry out these fraudulent acts.
Cash theft
Cash theft is done through skimming, Larceny, or Fraudulent disbursement.
False invoicing
False invoicing involves presenting an invoice that does not relate to a real sale or payment. In cases like this, the perpetrators make the company pay for goods or services they did not receive.
Identity theft
Fraudsters or cybercriminals could steal a Company’s identity. It gives them access to the company’s vital documents. There are also cases where these fraudsters pose as legitimate suppliers and then advise changes to existing payment arrangements. You can uncover this type of fraud when real suppliers emerge.
Check tampering
Here, the fraudsters convert the organization’s funds by altering a check. Checks that have not been voided can be illegally cashed, with a forged signature.
Payroll fraud
An employee can make false claims for expense made and then demand a refund. Another common payroll fraud is the issue of “ghost worker.” This practice sees the payroll controller add a non-existent employee to the company’s payroll.
If the company is operating a direct payroll deposit policy, it makes it easy for the “ghost funds” to go straight to the perpetrator’s account.
A small business owner could have the best ideas and work hard to see the business thrive. However, fraudulent activities can threaten that success. How then can you stop this from happening? Below are 7 tips that can help prevent small business frauds in business.
How to prevent small business frauds in business
1. Put a fraud policy in place
Fraud policy should indicate repercussions for committing fraud (termination of employment, prosecution). These policies should cover both the tangible and intangible assets in your company.
2. Check the books from time to time
It is essential that you do this as a business owner, as it helps you to ascertain that there are no discrepancies. You can ask your bank to give you the bank statements of your business accounts. It helps you monitor your cash flow.
3. Get professionals or Accounting firms to handle your finances
This will bring for more transparency and accountability. Also, demand for daily or weekly reports from the accounting department.
4. Have a password policy
Try to update or change your passwords from time to time. Also, make the passwords a bit complex or difficult to decipher.
5. Segregate cash related functions
Don’t let one employee perform all the accounting and bookkeeping duties. Let there be a team or department that handles that. Why? It will make them serve as watchdogs to one another.
6. Be mindful of who you hire or do business with
Avoid recruiting or dealing with individuals with fraudulent or dubious tendencies. Working with fraudulent people will expose your business to fraud. Avoid them!
7. Restrict access to master file records of your vendors/clients
Any changes to be made should require supporting documentation. It also applies to payroll as it helps to eliminate illegal payments or changes in pay rates.
Building a business is an uphill task. When you put in so much work and effort, you should be able to rip the dividends and see your business grow. Fraud is a major threat to the growth of your business. So make sure you apply the above tips to keep your business safe and secure.
