12 Ways to Prevent Fraud and Save Your Business
According to the Association of Certified Fraud Examiners, the average business loses five percent of its revenue to fraud each year. Fraud prevention is important to maintaining control over your accounts, decreasing your exposure to fraud and ensuring the health of your business. Quite often, business owners do not set up fraud prevention controls until they experience fraud. By taking a proactive approach and the right preventative measures, these 12 common fraudulent scenarios can be avoided:
1. Confidential items such as checks, financial documents and employee and customer files are kept in areas of high access. After discovering a fraudulent charge was made to your checking account, you find out a checkbook is missing.
Keep confidential items in a secure location, such as a safe or a locking filing cabinet, and deliver mail that contains confidential information directly to a mailbox or the post office. Leaving these items out or unattended is an invitation for bad behavior.
2. Employees with access to business account information are not being tracked, and the number of unauthorized purchases is getting out of hand.
Share business account information with limited, trusted members of your team because potential fraudulent activity can be performed by inside sources as well as outside sources. For those who do not have access to business account information, establish policies and procedures for when they need to make a purchase on behalf of the company.
3. Unaware of a scam email that has been circulating, your employee opens an untrusted link on his work computer and transmits a virus onto the server.
Be aware of fraud threat and trends including online malware, check fraud, email scams and credit/debit card fraud. Train your employees on the different types of fraudulent activity and the importance of identifying it and bringing it to the attention of their manager. You should also invest in anti-virus, firewall, malware and spyware detection software to ensure that your business is operating on a secure connection.
4. While on the hunt for a new hire, an existing employee hands you the resume of her close friend who seems well qualified for the position, but whose tenure has been brief at each job she has held.
Even if youíre hiring someone you already know, consider running employee background and credit checks during your hiring process. Running these checks not only protects your business from potential fraud, it will also save you the resources of hiring and training the wrong employees. If you decide to run these checks on potential employees, make sure you understand the requirements for performing a background or credit check.
5. You lend your company credit card to another employee for some routine purchases and their expense report seems unusually high.
Itís a common but risky practice for business owners to lend their company credit card to another employee for a business expense. If you choose to do this, request all receipts and check your account statement regularly for any additional charges that seem incongruent with approved business activities.
6. It has been several months since you reviewed your business account statements but your current balances arenít reflecting your recent (and impressive) sales record.
One of the best, and most commonly overlooked, ways to detect and mitigate fraud is to check the account statements of your business. This can be done manually each month, but if you have online banking you can monitor your account activity in real time. You can also set up email alerts that notify you when account activity occurs, such as when a check clears or if your account balance is above or below a certain dollar amount.
7. While reviewing your account statements, you discover a handful of business transactions that you did not authorize. You find out that your bookkeeper has been given authorization to sign off on purchases and make deposits.
Make sure that financial duties have dual control or are segregated. For example, the bookkeeper should not be in charge of recording expenses, signing checks, making deposits and reconciling bank accounts. Always designate different people to support your back office functions, with the owner or CPA as gatekeeper. When involving multiple employees in this process, their roles, responsibilities and rights need to be established. If strong internal controls are in place, both internal and external fraud are less likely to occur.
8. You check your business account statement online and find several recent purchases made to your department store debit cardÖ except you donít have a department store debit card.
Be aware of the location of your business checks and track who has access to your routing and account numbers. Shred any documents that include confidential information when going through the process of discarding files.
9. Your business credit card has $3,000 in recent purchases even though you paid off the balance less than two weeks ago Ė using the free internet at your local coffee shop Ė and you havenít used the card since.
Be sure to use a network you trust, such as your business or home networks, when accessing sensitive information. In order to use a keylogger, a hacker first needs access to your computer or network to put it in place. Access to trusted networks should also be password protected and more difficult to access externally.
10. You get a call from a vendor that youíre unfamiliar with even though they provide a product your business frequently utilizes. They claim to be working with one of your employees and ask you to clarify your credit card information. You comply and when you later mention it to the employee they claimed to be working with, she tells you she is working with another vendor.
Before you share sensitive information over the phone, confirm the identity of the person with whom you are speaking. If you are concerned about becoming a victim of telemarketing fraud, itís best to ask for the name and number of the individual. Once you have confirmed with your team that your business is working with the caller, the appropriate channels should be used to complete any transactions.
11. Someone outside of your business has your account information and has made a fraudulent charge with your debit card.
ACH (Automated Clearing House) origination lets you electronically send and collect payments through the ACH network. ACH provides precise control over your cash flow by giving you the ability to specify the settlement date of remittances and payments. This network also offers an important fraud detection and prevention tool, which is the ACH Filter.
An ACH Filter allows you to define acceptable ACH debits and credits to clear your business accounts and provides you with control and helps protect your business against unauthorized or erroneous ACH entries. You can set various criteria to authorize certain ACH debits and/or credits to post to your account. If any items do not match the filter data, that information is provided to you so you can determine whether to honor or return the ACH items. Exception processing also permits unresolved items to be returned unless the bank is notified.
12. Someone outside of your business has your routing and account numbers and has been cashing fraudulent checks.
Positive Pay service quickly identifies possible fraudulent checks to help safeguard your business. Positive Pay is an automated check matching service that compares checks presented for payment with a list of the checks your business has issued ó uploaded into an online banking system.
Each time your accounts payable system generates checks, you transmit a checks-issued file to your bank. Your issued check data is compared to a daily paid check file to ensure that all checks presented for payment have been authorized and are presented for the correct amount. By identifying unauthorized transactions (including counterfeit or altered checks) before final payment, your business has less exposure to fraud.