5 Ways to Prevent Being a Victim of Business Fraud

June 4, 2019
Business fraud is a devastating issue for companies of every size. According to The Association of Certified Fraud Examiners, in 2018, United States businesses lost an average of 5% of their gross revenues due to fraud. Private companies, including small businesses, experienced median losses of $164,000. In fact, fraud hit small businesses the hardest! Business fraud affected 28% of smaller organizations, while 22-26% of larger businesses were impacted. Regardless of your business size, you need to take a proactive approach to fraud to prevent it from happening to you.

What Is Business Fraud?

Part of why the numbers on fraud are so high is that business fraud can take a variety of forms. Fraud is used to refer to any situation where someone knowingly misrepresented the truth or concealed a fact to force the other party to act in a certain manner. Fraud is always intentional and never an accident. While fraud is typically a civil crime (individual against business, business against business, etc.), it can be criminal in some situations. In order for any charges to be filed, there must be a demonstrable loss. For example, if your business purchased a used computer from someone who lied and said it was working properly, the cost of the computer would be a loss and mean that your business was a victim of fraud.

What Types of Fraud Affect Businesses?

  • Employee Fraud: This common type of fraud involves insiders and often involves misrepresenting assets or accounting fraud. Skimming money out of a cash drawer, writing a fake check, taking supplies, or using services without permission are all types of employee fraud.
  • Customer Fraud: Buyers and clients can steal from businesses in a wide range of ways, including using stolen or bad credit cards, writing bad checks, returning the wrong item or an item not purchased for a refund, filing a false insurance claim and more.
  • Vendor Fraud: When working with unscrupulous contractors, a business could be overcharged or billed for work that was never completed.

5 Ways to Prevent Being a Victim

  1. Always complete thorough background checks on new employees and call previous employers to confirm that they had no issues. If an employee will be handling money or will be able to access sensitive information like customer credit card numbers, do a particularly thorough job.
  2. Separate financial tasks and responsibilities so that nobody is in charge of everything. A system of checks and balances offers a great amount of protection to many small and mid-sized businesses.
  3. Establish clear policies to handle inventory, as well as cash and credit card information. By setting control policies, your employees will know what to do if a box of inventory suddenly goes missing or a bad check is received.
  4. Review your invoices, purchase orders and accounts payable on a regular basis to ensure that everything is from a real vendor and that you are receiving all orders.
  5. Use both online security and physical security to protect all sensitive information at your business.
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