Is Your Business Fraud-Proof?
Falling victim to fraud can prove costly. Lost revenue and fines can reduce your bottom line and hinder future business. Small businesses are particularly susceptible to these effects. They are even more likely to experience business fraud than are larger organizations. Common small-business fraud includes cash larceny, skimming, payroll larceny, and check tampering.
The good news: you can stop fraudulent activity before it results in financial or reputational harm to your business. Use the following strategies to protect your company from fraud:
Trust…with accountability –
Many small businesses involve personal relationships. Employees may be close friends whom the business owner trusts implicitly. While trust is good, trust accompanied by accountability is better. Put policies and controls in place that demonstrate trust but don’t allow room for temptation.
Spotlight on the bottom line –
Keep a close eye on your accounts. Complete regular account reconciliations, examine documentation and perform reviews of financial information. Watch your bottom line to detect skimming or other suspicious financial activity right away.
Consistent fraud controls –
Too often, small businesses skip fraud-control measures due to the investment they require. Whether time or money, the effort is not considered worth the return. The truth is, companies with fraud safeguards in place report fewer losses and detect fraud more quickly than do those that fail to enact these policies. The most effective anti-fraud controls include business fraud training, employee support programs, employee codes of conduct, internal and external audits, countersignature controls, management review of financial statements, fraud hotlines, and formal fraud risk assessments.
Red flag alert –
While hindsight is 20/20, most businesses can look back and realize several red flags were looming before fraudulent activities came to light. In most cases, clear warning signs are present. Business owners simply have to watch for them. Keep in mind that most business fraud turns out to be an inside job. In most of these cases, the employee is a first-time offender. This means you can’t rely solely on background checks and established reputation to prevent fraud. Watch for the following employee red flags that can lead to fraudulent activity:
Personal financial difficulties, living beyond their means, family issues, recent divorce, control issues, and an attitude of “wheeling and dealing.”
Of course, these situations don’t always lead to fraud. They simply create scenarios that make fraud more tempting. Struggling employees are more likely to rationalize their fraudulent behavior. They consider their theft a “loan” they will repay when they get back on their feet, or they tell themselves they are underpaid and deserve the “bonus.” If their actions go unnoticed, they become bolder, and their fraud becomes more frequent or greater in scope. This is why it is important to notice red flags early on and keep fraud controls consistently in place.
Insurance coverage –
Even the best strategies cannot guarantee a business will never suffer from fraud. That’s why insurance coverage is important. To further protect your company from potential damages, speak with your agent about commercial crime insurance.