Small businesses are at a higher risk for fraud due to their lack of resources and smaller budget. Security consultants and other professionals can help small business owners reduce their risks and prevent fraud from happening in the first place, but it’s important that you take precautionary measures too.
There are three types of fraud that small business owners need to be aware of. These include theft, financial statement distortion and asset misuse. Each of these threats can result in economic loss for both the company as well as its customers if not handled quickly and properly. Having a risk mitigation strategy with contingency plans in place is crucial to minimizing the harm these incidents can have.
Why Small Businesses Are Susceptible to Fraud
Fraudsters usually target small businesses because they know that their resources are limited – this makes it easier to cover up any suspicious activity and less likely they will be caught. Criminals are also more likely to target small businesses because they typically don’t train their employees to recognize fraud, lack loss prevention policies and practices, and are often unaware of their overall risk.
Fraud can be anything from stealing inventory, tampering with financial records and creating fake invoices to pay off personal debt or for luxury items that aren’t related at all to the company’s expenses. Thieves will first steal inventory by either switching the original product with a counterfeit one or taking it completely. Scammers are also known to tamper with financial records, thus making it difficult for business owners to track their expenses and how much money they have left at their disposal.
Unethical employees are another way that fraud can happen. Illegal acts like falsifying invoices, creating fake refunds or discounts and even claiming to have worked hours on the job when they actually didn’t are some of the ways in which employees steal from their employers
Strategies for Preventing Fraud
Fraud prevention is not limited to installing security cameras throughout the business. Theft and misuse of company assets can happen everywhere, whether it’s online or in person. For these reasons, business owners must keep their eyes open at all times and be aware of any suspicious activity.
Here are some steps you should take to protect your small business from fraud:
- Perform background checks on potential employees
- Set up a strong password policy for all devices and applications
- Train your employees about security best practices
- Implement a foolproof sign-in process for remote employees
- Monitor emails, social media accounts and phone calls as much as possible
Staying informed and up to date on the latest fraud prevention strategies is critical. Look for conferences where fraud speakers address strategies to keep your business safe.
Using Internal Controls Pays Off
Employees are often the main culprits when it comes to fraud and theft. This can be tough for small business owners to address because they often consider their employees as friends or family members. Keeping track of your company’s expenses and financial status is important, which is why it’s crucial to implement internal controls.
Internal Controls will help you stay in the know about how much money a person has access to at any given time as well as where that money goes. Accounting software with data integrity tools can help better track these issues so you don’t have any surprises.
Fraud prevention training for employees is also important to keep your business safe. Criminals are getting smarter every day, so it’s crucial that you stay ahead of the game and implement any necessary security measures as soon as possible.