By Nathan Strum
Being affected by identity theft or fraud is a subject that may have been omitted from your business course. As a business owner, it is crucial to take the necessary measures to avoid financial fraud. There are two popular myths in regards to scams. Many have this idea that fraud is a problem only large corporations deal with because of the great deal of money that’s involved, but this is not true. Lost money is largely spreading to all types of businesses. Also, fraud or identity theft is generally viewed as an act that is done by hackers. When looking into small business fraud, we find that fraud happens more so from someone inside your company or people that you highly trust. Inc.com reported a survey done by PriceWaterhouseCoopers, “The survey, which involved 3,000 executives of businesses large and small in 54 countries, found that 88 percent of companies that reported some type of fraud also reported declines in financial performances. In addition, three-fourths of the crimes against businesses in the U.S. were carried out by insiders.” With this in mind, it is important to break down the concept of frauds and then create a mechanism against it.
Types of Fraud:
Larceny: Embezzlement usually happens from a bookkeeper. They have control of your funds, but they illegally use those funds for personal needs. Whether it is the tougher economic times or personal reasoning, this is substantially common in small businesses. You give authority to a trusted employee, and your funds are being used for non-agreed and dishonest purposes.
Stealing Company Products: This is where an employee steals assets that belong to your company. If your inventory reports are just not adding up, you cannot seem to locate certain products, and things of this nature, it is a good idea to keep an eye out for internal theft. Employees can be taking supplies and products without paying for them which is very common typically in warehouses.
Skimming: This can mean two things. Business Dictionary reports skimming as: the illegal practice of removing the top layer of a liquid. By taking money from cash receipts or not reporting the income, this person is evading taxes. On the other hand, skimming can also refer to stealing and recording credit card information then transferring this information onto a duplicate without the consent of the card holder.
Plan of Prevention: Ways to minimize risks
Employee Background Checks: Preliminary research can be one of your most powerful tools. Specifically if you are hiring for someone who will be dealing with confidential, sensitive and high-valued information, you want to be extra careful. Check for criminal activities, and be truly sure that you are not admitting someone dishonest such as a felon or a hacker into your staff. A preliminary act as such can diminish your risks tremendously. Business News Daily recommends going the extra step, “With a signed release, check new employees’ credit reports for any fiscal irresponsibility. During an economic crisis, it’s OK to have some financial stresses, but you wouldn’t want your comptroller to be filing for bankruptcy.”
Educate Your Staff
Although I noted that fraud is usually a deed done by an employee, your staff can also be one of your best weapons. The Small Business Administration suggests to, “Hold regular training sessions on basic security threats (online and off) and prevention measures – both for new hires and seasoned staff. Enforce the training by instituting policies that guide employees on the proper use and handling of company confidential information, including financial data, personnel and customer information.” Letting them know what is expected and how to handle certain measures is a key component of the equation.
Protect your Computer Systems
Not investing in adequate cyber protection has cost many small businesses greatly. Consequently, having a secure IT infrastructure is vital. Make sure that you are investing in a firewall, anti-virus, spyware detection software and things of this nature to protect your data. Also, it is best to back-up all your information, so a cyber attack will not prevent you from working.
Checks and Balances System
Creating a system of this sort is very beneficial for your company. When you have different people looking over invoices and documents, you are ensuring that every aspect matches. Review your finances monthly as a short-term goal. The Self Employed weighs in, “Running random audits or having a third party audit the books yearly shows employees that you are serious about fraud and deters would-be thieves.”
Fraud is a topic that is quickly growing and becoming more common in small businesses. As an entrepreneur it is important to take the necessary measures to prevent fraud in your company.