5 Ways To Protect Your Business Against Financial Fraud

“Back office” and other types of financial fraud are rising at U.S. companies, and are hitting small businesses especially hard. Fraud experts point to the lingering effects of recession, cutbacks that have eliminated financial checks and balances at many businesses, and simple complacency as key reasons.

According to Joseph Wells, a CPA and founder of the Association of Certified Fraud Examiners, these three major risk factors can lead to fraud in a small business:

  • Inadequate screening of employees before they are hired. Doing background checks is advised.
  • Inadequate financial controls around record-keeping, bank accounts and how cash is handled.
  • Too much trust. Sadly, the very thing that makes a small business a nice place to work also helps thieves succeed.

Some common back office fraud schemes include billing for non-existent goods or services, creating fake vendors, writing checks to dummy businesses or taking kickbacks from vendors.

A recent survey of small business owners by TD Bank, one of America’s 10 largest financial institutions, found that 75 percent are taking at least some steps to protect themselves against financial fraud.  But most aren’t doing nearly enough.

“It pays to be vigilant,” says Robert Dunlop, who heads corporate security and investigations for TD Bank. “Given the influx of new technologies available to small business owners, it’s important to learn about the latest techniques used by criminals, and to be more diligent in defending against fraud.”

Here are some tips for protecting your business against financial fraud:

Employ financial checks and balances.  Perform an internal review of company finances monthly. Make sure payment amounts match all invoices, and check for missing documents.  Running random audits or having a third party audit the books yearly shows employees that you are serious about fraud and deters would-be thieves.

Protect computer systems and practice web awareness.  Being complacent about cyber protection has cost many small companies dearly.  Every computer should have the latest firewalls and anti-virus software. Beware of “phishing” schemes that try to obtain confidential information from you or your employees. These usually take the form of an email that appears to be from a financial institution or service provider, but is fraudulent.  While most are easy to spot, some contain enticing headlines or appear to come from a legitimate address.

Guard sensitive hard copy documents, too.  The digital realm isn’t the only place your information is at risk.  Employees and others can steal your mail, credit card information or checks.  Printed financial statements and other sensitive papers should be shredded or stored securely.  Most financial institutions now let you opt out of receiving paper statements entirely, so that’s something to consider.

Even innocent photocopiers pose risk. “Most copiers built since 2002 contain a hard drive that stores every image scanned, copied or emailed. When you sell or upgrade your copier, the machine is usually reconditioned, but often the hard drive is left intact,” says Dunlop. Once the machine is resold, anyone can simply pop out the hard drive and access confidential information such as income tax and bank records, social security numbers, and medical records.

Use secure online banking.  Online banking is a secure way to manage small business finances. Most major banks now provide numerous levels of online security. Benefits include 24/7 access to real-time information, account transfers and payment management. You can easily schedule and manage payments and will have an audit trail of all transactions.  Be sure to check account activity regularly. Having instant access to payment histories helps you monitor spending for any discrepancies.

Get proper insurance. Crime and fraud-related losses generally aren’t covered by property insurance policies, so it’s important to protect money losses from workplace fraud.  “Fidelity Insurance” protects your business against criminal acts such as robbery, embezzlement, forgery and credit card fraud. Liabilities secured under this type of insurance usually include money loss coverage (burglary or theft) and employee dishonesty (embezzlement and forgery).

SCORE is a nonprofit association dedicated to helping small businesses get off the ground, grow and achieve their goals through education and mentorship.

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