Key Takeaways
- Implementing low-cost strategies such as thorough hiring practices and enhanced computer security can significantly reduce the risk of fraud for small businesses.
- Employee education, cross-training, and regularly rotating job responsibilities contribute to creating a vigilant workforce that is less susceptible to fraudulent activities.
- Subscribing to fraud remediation services and engaging experts for response planning ensures that small businesses are not only preventing fraud but also equipped to mitigate its impact when it occurs.
Running a small business can be immensely rewarding, but it also comes with its fair share of challenges. One of the most significant threats is fraud.
Fraud incidents can have a devastating impact, but prevention and mitigation strategies can help your small enterprise survive. Here we'll explore the unique challenges that small business owners face in dealing with fraud and discuss 10 low-cost fraud prevention strategies to protect your business.
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The Fraud Challenge for Small Businesses
Small businesses are particularly vulnerable to fraud due to the disproportionate impact a financial loss can have on their revenue. The lack of resources and time invested in risk reduction makes fraud more likely to persist for longer periods before being detected.
Also, smaller businesses have fewer fraud controls than larger organizations and become victims more frequently. For example, billing and payroll fraud at small businesses occur twice as often compared with larger organizations, while check and payment tampering occur at four times the rate.
Your local credit union can help small businesses integrate fraud prevention and mitigation into their workflows to help prevent fraud and minimize its impact.
Types of Fraud Affecting Small Businesses
Fraud can come from various directions, including traditional cyber threats and emerging risks. Small businesses face not only common intrusions like malware, but also more sophisticated attacks aimed at stealing trade secrets, customer payment information, and even locking computer systems for ransom.
Identity theft is on the rise, with fraudsters stealing critical business information such as tax identification numbers and exploiting it for personal gain. Fraudsters also target a business’s customer records to sell customer identities on the black market.
Mobile devices have introduced new vulnerabilities to in-house networks, giving perpetrators new entry points. If your employees can use their own devices for business purposes, how confident are you that the devices are not compromised?
The good news is that small businesses can implement policies, procedures and safeguards that can increase detection, minimize losses and ensure effective resolution of fraud.
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10 Low-Cost Fraud Prevention Strategies for Small Businesses
Prevention and mitigation strategies can mean the difference between a thriving enterprise and a shop closing its doors.
1 Be thorough when hiring: Internal staff account for 37 percent of fraud, so your ability to protect your business starts with recruitment.
2 Establish a code of conduct: Employees are less likely to cross the line if they have a strong sense of company rules and expectations.
3 Educate and cross-train your employees: Your staff must be aware of all the ways a company’s financial health and reputation can be compromised. Rotate job responsibilities so no one remains in a sensitive position for a long period.
4 Keep close tabs on finances: Check bank and credit card statements monthly, review your accounts online often, and know how much it costs to run your business, as well as how much money is coming in.
5 Bolster computer security: Protect your network with firewalls, anti-malware, and email phishing detection products.
6 Be aware of regulatory changes: Pay close attention to local, state and federal requirements for protecting customer information and reporting fraud.
7 Use checks with security features: Checks with security features such as holograms, heat-sensitive ink, chemical reactive paper and a true watermark make duplication difficult.
8 Use a fraud detection monitoring service: Having a set of eyes on the business can help detect fraud so you can minimize the damage.
Given the rampant nature of fraud in today’s world, you also need to plan for the day it happens. The final two mitigation strategies can help alleviate fraud’s impact:
9 Subscribe to a fraud remediation service: Fraud remediation advocates can determine the threat, investigate acts by unknown parties or employees of the business, and spearhead the investigations needed to prepare cases and speed the path to a resolution.
10 Look to experts to implement a response plan: Work with a recovery service that can provide an action plan for the critical first 48 hours after the discovery of a security breach or fraud.
Unfortunately, fraud is an ongoing threat, and you must be diligent in reducing risk in your small business. With the median time to detect an internal fraud scheme being 14 months, you must always be on the lookout for internal and external threats.
APR = Annual Percentage Rate
