Avoiding Business Fraud

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Running a small business is filled with risks and one potential risk is fraud. According to the Association of Certified Fraud Examiners in their 2012 Report to the Nations, most organizations can expect to lose 5 percent or more each year to fraud. The median loss was $140,000 with small businesses being the most vulnerable. Minimize your risks by understanding how fraud occurs and tightening up those areas of your business operations.

Employment Fraud

One type of fraud occurs when someone outside of your company uses your information for their own employment gain. To understand how employment fraud happens, consider someone with a criminal record. They will have a difficult time passing a background check and are required in most states to disclose their criminal record. If that person can get someone else’s personal information, such as a Social Security number, bank and credit card information, then they may use those to gain employment.

This affects you and your company a number of ways:

  • Mistakes show up on your employment history
  • You are opened up to tax audits because of employment reported to Social Security
  • Tax refunds can be affected

Outside of the employment issues, your information could be used to:

  • Obtain medical services
  • Set up home utilities
  • Create fraudulent bank and credit card accounts
  • Take out loans

The U.S. Small Business Administration lists the typical causes for small business fraud as:

  • Credit card and bank account abuse
  • Poor computer security
  • Inadequate record management
  • Lack of background checks on employees

Bank Accounts and Credit Cards

It’s important to keep your personal and business bank accounts and credit cards separate. If information from one is stolen, the other won’t be affected. Keep all digital records and physical files separate as well. Having separate accounts but maintaining the paperwork in the same file drawer still puts you at risk if a break-in occurs.

Do not give out your credit card or bank account information to employees to use, or vendors with which you aren’t familiar. You should always be the one to direct that information to others outside of the company so you know where it’s being used. You should also be the one who reviews statements, line by line, so you can confirm that each transaction as valid.

Do as much of your banking and bill paying online and switch to paperless statements. The less paper trail you create, the fewer physical documents there are to fall into the wrong hands. If you pay bills by mail, take them to the post office directly so there are fewer opportunities for someone to intercept that information.

Securing Your Computer Resources

At a minimum, you should install a firewall on your company system as well as anti-virus and malware software. Also use software to detect spyware and prevent data-collecting programs from sneaking into your systems. Require all computers that connect with your company’s systems to have the same software installed.

Set up a regular backup routine to make sure you always have a good backup of your information. Hackers can steal information and then corrupt files as they leave your system. While you’re busy putting the pieces together, they may be creating fraudulent accounts with which to drain your company’s funds. The sooner you can be back up and running, the sooner you can prevent more damage from stolen data.

Educate your employees about how they can be on the look-out for fraud and help keep the systems secure. Establish a password policy that requires strong passwords that use random numbers, letters and special characters. Require employees to change their passwords every 30 to 60 days and do not allow reusing passwords. If you have a bring-your-own-device (BYOD) environment, make sure only authorized devices get connected to your company’s system.

Detecting Fraud

Fox Small Business reviews software that you could use to help uncover fraudulent activity. However, one needs to know where to look and missing any one channel can leave you feeling safe while fraudulent activity is actually taking place. A thorough investigation by a professional organization experienced with what to look for may be a better investment of your security dollars.

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