A recent survey found that one-third of B.C. businesses report being victims of fraud, but only 5% of the businesses surveyed perceive the risk of fraud to be high.
With this discrepancy between those who are aware of the risks and the number of fraud-related crimes actually perpetrated, it’s more important than ever for you to educate yourself about the potential risks to your business.
Common Sources of Fraud
Fraud can originate both inside and outside your business:
Internal Fraud
Employee theft is a common source of fraud. This theft can take many forms – from lost inventory to unethical accounting practices and the theft of actual financial assets.
External Fraud
Externally, potential sources of fraud are much broader. Customer fraud may come in the form of counterfeit bills, bad cheques and the use of stolen credit cards. For businesses with a retail component, false returns can be a problem as well.
Fraudulent dealings with third-party contractors may come in the form of overbilling, advanced fee schemes and their failure to fully deliver on agreed-upon work.
Lastly, there are threats of a more anonymous nature, such as computer hacking and information theft from outside sources.
How to Protect Yourself
Fraud prevention isn’t about expecting the worst of people – it’s about taking proactive steps to limit your business’ exposure to certain risks.
Use these simple tips to begin protecting your small business against fraud right now:
1. Educate Yourself and Your Employees
Relying on common passwords, using the same password for all logins and keeping lists of passwords in or nearby computers makes it all too easy for fraudsters to steal sensitive information about your business and your employees.
The first step in protecting yourself against basic forms of information theft is to educate yourself and your employees about creating secure passwords, changing passwords often and keeping those passwords safe.
2. Implement Clear Policies
Without clear policies around fraud and theft, employees may not realize what the impacts of their actions are on your business – or what the ramifications may be for them if they’re discovered.
For instance, while it may seem like there’s an obvious leap between an employee taking home a handful of pens and an employee taking an unused laptop from the office, for some the distinction may not be as clear. And that’s especially true when there’s a deeply ingrained culture of “borrowing” office supplies amongst employees.
In your policies and procedures manual you need to clearly outline your expectations related to employee conduct, what is considered “fraud” and “theft,“ and what the consequences are for violating these policies. These policies should cover everything from the theft of physical assets from your business to less-visible – though no less harmful – fraudulent accounting practices.
3. Keep Detailed, Accurate Records
All too often as a business owner you have to spread yourself very thin to keep everything moving. However, being organized and on top of business operations can go a long way toward shielding yourself from fraudulent activities.
Accurate, detailed record-keeping is important. For example, without solid inventory controls in place you’ll have no idea just how much product may be disappearing out the front or back door of your business.
Further, detailed accounting records will help you keep track of what money is coming in and what goes out, as well as what you’re billed by contractors in relation to the work they actually complete.
4. Do Your Homework When Hiring
When searching for a new employee or an external contractor, you need to do your homework so you know exactly who you’re hiring. Taking the time to do thorough reference checks is critical for both employees and contractors.
For certain positions, you may also wish to expand your recruitment process to include background checks. However, you’ll want to make sure you’re legally allowed to do so, and your best option may be to use a reputable service that specializes in pre-employment screening to do this on your behalf.
5. Enable Whistle Blowing
According to the same survey mentioned above, a significant number of frauds are uncovered in businesses by whistle blowers and third parties.
Having systems in place that enable employees to anonymously report tips are essential to dealing with fraud in your business before it gets out of hand.
6. Get Insurance
If despite your best efforts your business does become a victim of fraud, insurance can help you recover some or all of your losses.
In order to ensure that you purchase appropriate coverage, you’ll want to consult with an insurance specialist so they can help you evaluate all possible risks and what kind of insurance will best suit your business.
There’s No Better Time to Start Than Now
Fraud prevention is like any other kind of prevention – it’s easy to put off thinking about it until something becomes an obvious issue. However, fraud can have a serious impact on your bottom line, and in some cases, serious enough that your business may not be able to recover.
By taking a few simple steps to put your fraud prevention plan into action, you’ll protect your business and establish a culture of zero-tolerance for fraud now, and as a result, help mitigate unforeseen threats in the future.
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