As a business owner, your company is always at risk of fraud from employees, customers, vendors, and outsiders. Not only does fraud cause losses in business, but it also exposes you to civil and criminal charges and penalties if the fraud is carried out in your name. Guarding against fraud should, therefore, be a priority for your business. In this article, we examine types of business fraud and how to protect your company against them.
Credit Card Fraud
Credit Card fraud is a prevalent white-collar crime worldwide, and business owners have not been spared. Your company's credit cards are at risk from fraudulent purchases by employees. Hackers can obtain credit card information in a process known as phishing. Dishonest vendors can also duplicate your credit card, a type of fraud referred to as skimming. Cards are then used for purchases that can deplete your company's accounts and leave you in debt.
Personal identity theft is common, but your business identity is also at risk for fraud. Criminals can use your company's EIN number to establish lines of credit with retailers and banks. Further, they can use it to commit tax fraud, exposing you to federal charges.
A Price waterhouse Coopers (PwC) report in 2009 noted that 76% of all business fraud is carried out by insiders. Employees commit fraud in several ways including:
• Falsifying their employment information
• Making fake workman compensation claims
• Forging company checks
• Colluding with vendors to procure unnecessary supplies
• Stealing company or client data
Because employees often act as agents of the company, the company will be held liable for their crimes.
Clients can also cause your company heavy losses through a variety of ways including:
• Paying with bouncing checks
• Paying with stolen credit cards
• Returning items not purchased at your business for a refund
• Suing your business for injuries obtained on your property or using your products.
Medicare Fraud is another serious form of fraud with which your company could be charged. When employees file bogus federal workman compensation claims and receive medical benefits, lost wages or other benefits, the employer is held responsible by law. Similarly, if employees commit fraud by double billing, phantom billing or claiming for medical supplies that were not necessary or delivered, your company can be held for Medicare fraud.
Small online businesses are often the target of fraud due to their inadequate cyber security systems. Billions are lost annually in e-commerce fraud, with the perpetrators often being untraceable. If hackers access your customers' details through a security breach on your website, the law requires that you inform them or be held liable for their losses.
How to Protect Your Company
Credit card fraud can be prevented by limiting the number of people with access to company credit cards. Employees who use these cards must provide receipts for all transactions. Also, it is a good idea to pay vendors by check to avoid skimming. Online transactions should only be done from secure locations. Credit card companies can also help by reporting suspicious card activity promptly.
Employee fraud can be prevented by rigorous background checks during hiring and separation of critical financial functions such as procurement and payment. Automated systems can also help streamline inventory, accounting, procurement and sales processes. Stricter security systems in the office and online can also deter dishonest employees. Random internal and external departmental audits are useful in identifying and stopping fraud.
Customer fraud can be reduced by educating employees on how to deal with suspicious customers or transactions. Security cameras also help counteract shoplifting, false injury claims and return fraud.
E-commerce fraud can be reduced by investing in cyber security software and only using verified payment platforms that secure your customers' information.
Medicare fraud can be averted by investigating all claims internally before the employee is allowed to file the claim. Supervisors need to be trained on how to handle and report work injuries immediately they occur. A Medicare lawyer can also provide legal assistance if your company is charged with fraud.
No company can fraud-proof themselves 100%, but putting measures in place to identify and stop fraud immediately can help save the company millions in profit losses, legal fines and fees.