5 Effective Ways to Protect Your Small Business from Frauds

Nearly half of all small businesses experience fraud at some point in their business lifecycle. According to the Association of Certified Fraud Examiners, the total loss as a result of business fraud exceeded $6.3 billion in 2016.

Unfortunately, business frauds aren’t easily detected. When discovered, the damage is already done, and there’s nothing that they can do about it. Forensic accountants can be very expensive, and the investigation can last for months. That’s why companies should work on prevention of fraud and the improvement of security.

Here are five pieces of advice companies should practice more often to prevent fraudulent activities:

1. Watch employees and check their backgrounds when hiring – Carefully watch your employees and search for red flags. Any change in behavior or sudden luxurious lifestyle is an indication that something is going on. Employees who do thing such as insisting on doing a particular job only by themselves is a warning sign you should not ignore. Moreover, constant postponement of an internal or external audit by a certain worker is something that deserves further investigation. Before hiring new employees, check their background and experience. Any fraudulent behavior in the past can be easily discovered since everyone is connected today through different channels and networks.
2. Monitor activities – There are two options for monitoring activities. You can set up a system to monitor activities, or you can choose to monitor activities by yourself. But, monitoring business activities all by yourself can be exhausting and time-consuming. There are useful applications for monitoring employee’s computer work. These applications track any computer activity and make monitor screenshots. Employee monitoring and tracking software is a great solution for almost any business, especially if your employees are working from home. If your business is production oriented, you can set up security and video surveillance to know what’s going in the production area at any time. These systems can be expensive but can prevent frauds that could be far bigger. Non-financial frauds and asset misappropriation also happen very often.
3. Protect credit card and bank accounts – Credit card fraud is a growing problem for small-business owners. It’s almost impossible to control every financial transaction since the credit card is a central part of your business activities. Credit card frauds are typical for e-commerce companies. But, how can you protect your business against credit card thieves who place fake online orders? Check for IDs and signatures, and get all the information you can from the credit card. Pay attention to large orders. Use software or applications that could spot and notice fraudulent transactions.
4. Internal and external audit – Accounting fraud is the most common type of fraud, with payroll fraud being the most prominent type. A business that doesn’t have good and secure payroll software will most likely become a victim of a payroll fraud. Some common types of payroll frauds are ghost employee fraud (someone who is on the payroll system but does not work in the organization), timesheet fraud (paying employees inaccurately for the hours they work) and false expense report fraud. That’s why a periodic internal and external audit is significant. If you don’t trust your accountant, aside from internal audit, you can hire someone independent and neutral for external audit. The audit is important to check if numbers are accurate and if there is some disparity between financial records.
5. Establish procedures and rules – Establishing a set of standards and policies can help in fraud prevention. There are companies with strict rules regarding dressing code, lunch time, personal obligations and duties, time schedules, reports, etc. Reports are one of the most efficient ways to keep track of employees working hours, tasks and results. That way, when you suspect a fraud, you’ll know exactly where to look and who to investigate.