One of the biggest challenges you could face when running a business is fraud. Business fraud can lead to serious loss and failure within the business. A big fraudulent activity can deplete your small business profits and push you out of business. As a small enterprise owner, you should prevent fraud from happening. The risk of closing down is too high when you try to contain a big scam. Thus, you should learn everything that has to do with fraud and stay safe.
Understanding Business Fraud
To effectively deal with a business scam, you should understand how it happens. Find out the conditions and factors that provoke fraudulent activities and how to foresee them. More specifically, you should know all about the fraud triangle. Examples of situations that trigger fraud include:
- Disgruntled employees who feel financially strained
- Loopholes through which a malicious employee can commit fraud without being found.
Common Fraud in Business
Sending False Invoices
Employees who defraud businesses use false invoicing. It entails sending a fake invoice for items that were never procured. If the fake invoice is paid, the fraudster makes a lot of free money without the knowledge of their employer.
In most circumstances, fraudsters divert the stolen cash to their personal checking accounts. If your small business scrutinizes each invoice well before paying, it cannot be ripped off that easily. The best solution for this situation is for your business to invest in inventory software. This type of software will track the companies purchases, sales, and more, making it easier to stay on top of things.
Payroll System
A payroll fraud is as common as invoicing fraud. A payroll fraud occurs when an employee increases the number of hours they have worked.
Companies can prevent this by having employees log their time by using an app. In some cases, false sales or orders can be reported so that one can get an unnecessary gain.
If you want to prevent this type of fraud in your company, come up with a robust anti-fraud system. You can do this by reviewing all time sheets on a regular basis to make sure than no employee has overstated the hours they have worked. This system can as well capture false records and set a platform for investigation.
Check Tampering/Check Fraud
This one is the easiest method of stealing from a company. Countless companies have been defrauded via a check that is written to fake recipients. A business owner should consider using electronic billing software, this will ensure that all finances are secure.
Fraudsters who use this method work only in the background, trying not to be discovered until they get the money. Sometimes the check is genuine, but tampered with.
Theft of Money
Commonly called skimming, theft of cash is a rather widespread behavior. It affects businesses that use a less formal receipting process. Theft can also occur where the receiver of money manipulates the debtor’s ledger account and applies different receipts to that particular transaction. This method of stealing or misappropriating funds is called lapping.
Workers Compensation Fraud
This fraud happens if an employee manages to formulate a lie and exaggerate their injury to make a personal gain. Usually, employees who use this trick also lie about their exact location at the time of suffering an accident.
Mostly, they claim to have gotten injured during office hours while, in fact, they were out and about doing their personal business. To avoid this type of fraud in your company, buy the necessary safety equipment to be used in all business processes, or you and your employee may end up in court. Additionally, track your employees’ working hours to avoid a situation where they would claim undue insurance claims when they got injured outside your premises.
Internet Fraud
This can happen to any business that has weak consumer networks. Vulnerable internet network should never be used–as it attracts internet criminals like hackers and fraudsters. These are known to work tirelessly to exploit vulnerabilities in business networks.
Hence, any business using unsecured networks for its business transactions and workflows that entail private data is at risk of suffering fraud. It is imperative to use a router to keep your system files from ruthless hackers. It goes without saying that using software to safeguard digital data files is important.
EFT Frauds
This occurs when a person decides to use EFT (electronic funds transfer) to transfer money to their own bank account. This affects businesses of all sizes, especially, because they are using online banking technology.
How to Prevent Fraud
A common thing about business fraud is that it is committed by an internal entity. This is someone who understands how your payroll, invoicing, accounting, and banking systems work. To mitigate fraud, therefore, you should come up with a technologically robust system that can effectively track every business workflow.
Obtaining the right technology is not all. You must understand how this technology works for you and the controls you should insert in your processes every time you implement new technology. Additionally, you should configure authorizations and segregations within the software, giving access and permission only to relevant people. Protecting your business from fraud is very time consuming and it can be a lot to handle, but it is absolutely necessary for the success of your business.
