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Tips to Protect Your Small Business Against Fraud

Business fraud is dishonest and illegal activities committed by a person or a company to achieve financial gain. And, unfortunately, every business can be vulnerable to fraud, with small and mid-sized enterprises the most common victims of fraud.

Small Business Against Fraud

Fraud can take many forms, including:

  • identity theft, which involves the usage of stolen credentials to access credit line and steal money;
  • asset theft, which is the act of stealing office equipment, inventory, or any other business assets;
  • skimming, which involves the collection of funds that can often go unnoticed;
  • payroll fraud, which is the act of falsifying data about their productivity, sales, or hours works to get a higher pay; manipulating their attendance records; requesting a pay advance without any intention of paying it back;
  • customer fraud, which happens when customers or buyers write bad checks, use bad credit cards, shoplift, return stolen items to get a refund (return fraud), or filing a false claim for an injury or accident within the vicinity of the store;
  • invoicing fraud, which involves the creation of fake invoices to steal money from the business; this could be processing invoices for products and services that were never bought or creating a fake supplier or company to funnel money;
  • fake money scheme, which involves the use of counterfeit bills to pay for purchased products or services; and,
  • digital fraud, the act of hacking into computers or networks to steal valuable data, such as customer information, credit card numbers, and bank account information.

The effects of illegal activities of fraudulent individuals or companies can be detrimental to a business. Losing money due to theft or other types of fraud can bring your company down. Therefore, you need to be proactive to reduce your risks against fraud.

Here are six strategies to protect your business against dishonest individuals or organizations:

Create a fraud policy.

Creating a policy to prevent and respond to fraud is one strategy you can use to protect your small business. You need to properly and clearly outline what actions constitute fraud or theft, what should you or your employees do when there is suspected fraud, what consequences you or your employees may face for violating the policies, and who is responsible for investigating fraud.

You can check the sample fraud policy from the Association of Certified Fraud Examiners to see your policy’s possible outline.

Train your employees.

You should provide your employees with ongoing fraud training to teach them how to identify the warning signs of fraud and how to take action. It can be uncomfortable for employees to report suspicious behaviours, particularly when they suspect their coworkers. Hence, you must also create a code of ethics and maintain open communication to make them feel comfortable and safely share information.

Moreover, you must also train your employees and yourself, as the business owner, to safeguard computer systems and files containing confidential data. Educate your employees about implementing strong authentication practices such as creating secure passwords, changing passwords often, and avoiding the reuse of passwords.

Conduct a background check.

Even though conducting a background check and thorough reference checks when searching for a new employee or an external contractor is an extra cost for your business, it will allow you to filter every person you give access to with your operations. This is especially important if you are hiring someone whose responsibility is to handle financial records or cash.

Separate employee duties.

Often, small businesses tend to hire a single person to manage their accounting and bookkeeping processes. However, having only one person handle your business’s finances can increase the possibility of fraud going unnoticed.

To ensure that your finances are correctly handled and prevent external fraud or internal fraud, where an employee misuses their influence and access for personal gain, you can assign more than one person to complete the business’s financial responsibilities. With multiple people overseeing the financial records and reports, you, alongside your employees, can effectively implement checks and balances and perform regular accounting audits.

Automate your invoicing or billing processes.

Automating your invoicing process will cut your costs on invoice processing and help you achieve maximum protection against fraudulent invoices and fake payment fraud. You can utilize digital solutions such as an online invoice maker application to efficiently send and receive an invoice from your creditors or customers while ensuring proper tracking of each transaction.

Establish a solid accounting system.

Your accounting system can help you reduce your risk against fraud and avoid issues in your business operations. Establishing a sound accounting system will allow you to: keep records accurately and create custom, up-to-date reports using available data on your accounts.

But, besides accurate bookkeeping and robust reporting, a solid accounting system must also have the other necessary features that not only enable you to efficiently keep track of your business’s financial stability but also allow you to streamline your operations.

Your accounting system should have integrated features that automate processes, allowing your accounting and bookkeeping staff to improve efficiency when performing administrative tasks such as entering and organizing transaction records. It should also have audit features that will enable you to access detailed usage records, helping you track the source of data discrepancies in case they occur.

Leveraging modern small business accounting software programs provides you with the necessary elements for a sound accounting system. Various Accounting as a Service (AaaS) providers like KIPPIN offer accounting and bookkeeping services that can help you automate your record-keeping and accounting processes. Automation of your operations enables you to keep accurate and up-to-date records, allowing you to make detailed accounting reports. With updated records and detailed reports, you can easily see whether there are discrepancies in your finances and business operations.

KIPPIN – from the phrase “Keeping it simple” – aims to make people’s lives easier by providing simple solutions to everyday tasks. We offer accounting, bookkeeping, and tax services – all on the cloud. We also align our clients to top bookkeepers and accountants on our platform.

Contact us today at 1-905-581-9362 or email us at [email protected] You may also chat with us from our website at kippinitsimple.com/contact/ and see our product and service lineup to learn more.

Sources:

  • https://www.businessnewsdaily.com/3388-company-prevent-fraud.html
  • https://www.thebalancesmb.com/how-can-i-protect-my-business-from-fraud-398261
  • https://www.meridiancu.ca/Good-Sense/Posts/9-Tips-to-Protect-Your-Business-from-Fraud.aspx