Top Strategies for Protecting Your Business Against Fraud

As technology evolves, business activities are becoming more and more digitized. While that can certainly help streamline operations, it also presents a unique threat to small business owners. According to a recent report from the Identity Theft Resource Center, more than 80% of small businesses were the victim of a cyberattack, data breach or both during the previous year. That makes protecting your business against fraud an essential priority.

Many small businesses have limited resources, and they may not have the robust security measures of larger corporations. That makes them particularly vulnerable to fraud. If it happens, the effects can be devastating — ranging from financial losses to irreparable damage to the business’s reputation. This is exactly why prevention is so important. Here are five actionable strategies to help protect your small business from fraud.

1. Educate your employees

Your employees are your first line of defense against scam artists. In fact, fraud tips are twice as likely to come from employees who receive fraud awareness training, according to the Association of Certified Fraud Examiners. Start by creating a fraud prevention checklist that includes the following tips for employees:

• Know the warning signs of fraudulent activity, which includes phishing attempts, financial discrepancies and other red flags.
• Never share confidential business information or files with people outside of the company.
• Do not send sensitive information over email, even if the email appears to be from a trusted source.
• Always follow approved protocols when initiating or approving a financial transaction.
• If something feels like potential fraud, step back for a moment, question the legitimacy of what’s happening and confirm that everything’s on the up and up.
• Protect your passwords and opt for multifactor authentication, which requires you to verify your identity before logging in.
• Don’t conduct business operations or access sensitive data on public Wi-Fi networks.

Drive home the importance of preventing fraud and how it could affect your team and the business as a whole. It’s also wise to run background checks on all new hires, especially those who will have access to business funds.

Be aware of common fraud trends

Remember that fraud prevention is an ongoing process. You’ll want to keep your employees up to date regarding fraudulent trends that could affect your business. The Federal Trade Commission (FTC) spotlights the following threats to small businesses:

• Phishing emails, calls and social media messages
• Ransomware attacks
• False or doctored invoices
• “Customers” claiming that they never received items they ordered
• Business coaching scams
• Scam artists posing as advertising providers and requesting payment
• Fraudsters pretending to be government officials or utility companies
• Tech support scams
• Fraudulent checks
• Cyber criminals threatening to change a small business’s online reviews
• Credit card processing and equipment scams

2. Create a fraud action plan

Despite your best efforts, it’s still possible to fall victim to fraud. Having a clear action plan in place can help your team respond quickly and prevent further damage. The FTC recommends taking following steps if sensitive data has been compromised:

• Secure operations: Identify what caused the breach and consider shutting down any business operations that are still vulnerable.
• Fix the problem: This can be challenging, depending on the type of fraud. You might choose to enlist the help of forensic investigators to identify the problem. Researching this and connecting with a company beforehand can help prevent delays if you experience a data breach.
• Communicate with your customers: You’ll want to do this as quickly as possible, especially if regular business operations have been interrupted. Trust is everything. Be transparent without putting customers at further risk.
• Notify relevant parties: That includes law enforcement as well as customers, vendors and business partners who may be affected.

3. Prioritize financial monitoring

Accurate bookkeeping is always important. Not only can it prevent overspending and strengthen your business’s cash flow — it can also help your employees spot potential fraud. Financial monitoring is exactly what it sounds like, including:

• Routinely reviewing invoices and payment requests: Be on the lookout for phony invoices or unverified refund requests, both from customers or vendors. Encourage your employees to verify all payment requests.
• Instituting dual-control banking: This prevents any one person from having the ability to initiate and approve a transaction themselves. Instead, whoever makes a payment request will need to have it approved by someone else within the company. That can create an extra hurdle for fraudsters.
• Creating separate financial management teams: Spreading out financial responsibilities can help create checks and balances — and prevent fraudulent activity from employees.

4. Protect sensitive data

Your small business may be storing all kinds of sensitive personal information, from employee records to customer data. You’ll want to be especially careful about how you store data like Social Security numbers, account information and credit card numbers. The FTC suggests taking the following steps to safeguard this information:

• Regularly take stock of whatever personal information your small business is storing.
• Protect that data by keeping physical files in a secure, locked location.
• For electronic files, safeguard your computer system and understand all digital vulnerabilities.
• Only keep information that is essential for your business, and properly dispose of what’s no longer essential. That includes shredding paper records and wiping data from electronic devices before disposing of them.

5. Make sure you have adequate insurance coverage

Chances are your small business already has some level of insurance coverage. Adding commercial crime coverage can help protect you from fraud-related damages.

Unfortunately, scam artists and cyber criminals are all around. While you may not be able to prevent being targeted, your small business can take steps to avoid a breach — or at the very least, minimize the damage. That could help mitigate financial losses and protect your company’s reputation.