When the accounts team at Google and Facebook received large invoices from a company called “Quanta Computer,” they didn’t think twice before paying them. Why? Because Facebook and Google use Quanta Computer technology in their data centers.
The only problem is that these invoices weren’t coming from Quanta. Instead, they were convincing fakes sent from a 50-year-old Latvian man named Evaldas Rimasauskas. Over multiple years, Rimasauskas defrauded the two tech giants out of more than $100 million.
Cases of business fraud have spiked in the last few years. On average, businesses today lose 5% of their revenue to fraud with each event costing an average loss of $1.7 million.
Businesses have enough to worry about without needing to constantly fight off fraudsters. In this guide, we’ll explain how business fraud happens, and give you nine powerful fraud prevention tips to help secure your employees and systems.
How does business fraud happen?
Business fraud occurs when a bad actor such as a hacker, disgruntled employee, shady customer, or even competitor deceives a business to illegally access funds, information, or access to systems.
Fraud can happen to any business, but is especially common in small- to medium-sized companies where employees are stretched thin.
Here’s a common example:
● Scammers send phishing text messages to your employees pretending to be your company’s CEO or other high-ranking employees.
● They’ll claim that they’re stuck in a meeting, but urgently need your employee to do something for them.
● They might ask employees to go and buy gift cards for a client, and send the codes back to them. Or they might ask them to change payment information in your accounting software and wire them money instead.
● Because your employees believe they’re speaking with their boss or manager, they comply.
● In reality, the scammers have used social engineering tactics to discover enough about your team structure to run this scam. And any money, access, or information they give up goes straight to the scammer.
When these cases of fraud happen, employees are often blamed for the loss. But that shouldn’t be the case, especially if your employees aren’t trained to properly detect fraudulent schemes.
With fraud occurring at all levels of a business, how can you protect your finances and sensitive information?
The 9 best fraud prevention tips for businesses
- Identify areas where your business is vulnerable to fraud.
- Safeguard your computer systems from hackers.
- Conduct employee background checks.
- Back up data on a regular basis.
- Conduct regular audits.
- Provide security and fraud training for your employees.
- Implement internal controls.
- Create a reporting system.
- If fraud happens, handle it immediately.
Fraud is a game of deception played by con artists who would stop at nothing until they make sure your business is ruined. But don’t give them a chance. Instead, read these tips on how to avoid business fraud online and internally so you don’t fall victim.
1. Identify areas where your business is vulnerable to fraud
Getting caught up in the idea of protecting your business from online fraud is understandable. But all efforts become futile if you don’t know where or how criminals are infiltrating your system.
For example, let’s say your business suffered a financial loss due to a data breach triggered by a business email compromise scam. Your first response should be to identify the source; in this case, a phishing email from a criminal.
This approach gives you two ideas on where the vulnerability occurred:
- Your security system is weak for not flagging a suspicious email.
- Your employee doesn't have enough training to detect a phishing scam.
With this information, your security experts can fix the loophole and increase the layer of protection on your email server. Also, you’ll know that you now need to give anti-phishing training to all of your employees.
Here’s what to do:
● Run a SWOT analysis (strength, weakness, opportunities, and threats) of your security systems. Look for any possible threat to business growth.
● Determine if one or two employees hold too much power or control. Important or influential employees are often the target of spear phishing attacks.
● Monitor unsecured or unverified third-party integrations in your systems. Hackers use vulnerable endpoints to launch zero-day attacks.
2. Safeguard your computer systems from hackers
Every tablet, smartphone, or computer you use in running your business is susceptible to various types of online fraud.
Even visiting a fraudulent website could unknowingly infect your device with malware and viruses. One infected, fraudsters can hack your phone or gain access to your private networks and steal sensitive information.
In the past few years, breaches have hit even the most trusted companies, including Google, Facebook, Amazon, Twitter, LinkedIn, and many more.
Setting up computer systems for your business should go beyond improving customer service, but also ensuring you don’t run at a loss while at it.
Here’s what to do:
● Consider updating your website daily, weekly, or monthly. This gives scammers less opportunities to find vulnerabilities.
● Make a habit of changing your passwords monthly and implementing two-factor authentication on all accounts.
● Use strong passwords with combinations of numbers, letters, and special characters.
● Ensure all employees avoid using the company’s devices for personal use.
3. Do employee background checks
It’s often easy to get swayed by a candidate’s qualifications when you’re in the hiring process. But finding a business-worthy hire is only half the battle.
The bigger picture is that 90% of all business theft losses come from employees, more than 30% of all bankruptcies come from employee theft, and 60% of employees say they would steal from their employers if they knew they wouldn’t get caught.
Safe to say, hiring the wrong employee can ruin your business.
Ensure you do background checks on all hires, especially hires involved in managing payments or handling cash or checks.
Verify all records, including employment and criminal records, and contact all references and previous colleagues to ensure the information provided is accurate. At the end of this, you should be able to determine if they’re a worthy hire.
While an employee may be perfect for your business, ensure you set up systems that allow you to observe and understand them. Disgruntled and even highly trusted employees can often lose their moral ethics due to a poor work environment or revenge on a manager, making them commit fraud.
Here’s what to do:
● Run background checks on all candidates using verified pre-employment screening services.
● Implement internal controls to safeguard your company’s assets and ensure accurate accounting records.
● Limit financial and operational access to authorized and unauthorized employees.
● Implement proper separation of duties.
4. Back up data on a regular basis
When it comes to the digital landscape, data is everything to your business. Whether it’s keeping records of invoices, employees, or transactions, without data, your business can’t function properly.
Unfortunately, fraudsters know this and target businesses of all sizes with different schemes to steal their data and resell it on the dark web.
Without a good backup plan, a single human error, cyberattack, or system failure can put your business on hold for days, months, or even years—eventually ruining your business. In fact, in a 2021 survey by IBM, lost business opportunities were the biggest cost of data breach.
On the flip side, implementing a system to back up your data effectively protects your business. So in the likelihood of extreme scenarios, you can enable the quick recovery option or go back to the latest version of your business before the data breach.
Here’s what to do:
● Opt for multiple onsite and offsite backup platforms.
● Use the 3-2-1 data backup strategy. Store three copies of your data in two media formats, and send one copy offsite.
● Implement a regular weekly, bi-weekly, or monthly backup schedule.
● Encrypt and prioritize crucial data for backup and recovery.
● Regularly test the recoverability of your backups before you actually need them.
5. Conduct regular audits
Business owners often spread themselves too thin to ensure the business is moving, and end up missing some key factors that give room for fraudulent activities to fester. When this is left unchecked, asset misappropriation and financial statement fraud schemes become the order of the day.
Conducting regular audits is one way to keep your finances in check and potentially shield your business from bankruptcy.
But employees can also be sneaky-smart in covering up their tracks. And unless you’re an expert accountant, you’ll never catch them. To fix this, bring in a CPA to do a surprise audit on your company’s finances. This approach catches fraudulent employees off guard, making it challenging to cover their tracks.
Here’s what to do:
● Identify areas in your business that need auditing.
● Create a regular auditing calendar.
● Run your auditing reports via a CPA or trusted advisor.
● Keep accounts of all audits to detect sudden discrepancies easily.
6. Provide security and fraud training for your employees
Most people are aware of cyber criminals, and the schemes they use in committing online fraud and even identity theft. But many still indulge in acts that risk their personal and business information.
Employees are no different.
A survey of more than 2,000 Americans discovered that more than half (68%) were accessing private information via public wi-fi, repeating passwords on multiple accounts, and shopping online multiple times in a month. All of which leaves a digital footprint for hackers to follow.
With behaviors like these, training your employees to be fraud proof is vital to the longevity of your business.
According to the Association of Certified Fraud Examiners’ (ACFE) 2022 Report to the Nations, 42% of frauds were detected by tips, and half of those tips came from employees. Bringing experts to educate your employees on potential warning signs of internal and online fraud is more of an investment in your business.
The goal is to ensure your employees understand the company policies and know the right course of action when they suspect fraudulent activity.
Here’s what to do:
● Provide frequent fraud awareness training for all employees, managers, and executives.
● Create an easy reporting system for internal and external fraud-related incidents.
● Run an internal fraud detection and prevention test to measure employees’ response and effectiveness.
7. Implement internal controls
Protecting your company’s financial integrity and reputation starts with building internal systems that deter fraud. An easy step to this path is to implement internal controls.
The term “internal control” refers to plans, programs, or processes used in tracking, safeguarding, and controlling your assets. It provides an established system to detect and prevent all kinds of business fraud.
Here’s what to do:
● Assign responsibilities of financial duties to more than one person.
● Require extra authentication for employees requesting private and/or finance-related information.
● Create an approval and review process for all documents.
● Implement strategies based on impact and probability level.
● Ensure systems don’t pose a risk to the company’s growth.
● Reassess systems frequently by maintaining up-to-date documentation of several changes and improvements.
8. Create a reporting system
Monitoring the ins and outs of every part of your business is time consuming and slows your business' growth; that’s why delegating tasks to employees and their managers is essential.
However, the downside is that you’re likely unaware of your employees' fraudulent activities. Simply trusting your employees based on their time with the company won’t do the trick.
The ACFE’s 2022 Reports to the Nations discovered that employees with at least 10 years’ tenure in a company caused a median loss of $250,000. That’s five times more than employees with less than one year of tenure. Safe to say that employees who stay longer at a company steal more than new employees.
Because of this, you need to implement an internal reporting system. This system would be based on anonymity, and the information gathered won’t be shared among other employees but only with you and/or other security personnel, if needed, outside the organization. This will help you quickly detect fraudulent employees plotting to steal from you.
For example, an employee discovers their colleague is claiming invoices for workers that don’t exist or no longer work at a company. With a reporting system, this employee can send an anonymous tip. You can investigate if the claim is valid. The idea of a reporting system is to curb occupational fraud and ensure policies are strictly adhered to.
Here’s what to do:
● Offer anonymity to all whistleblowers to protect their identity.
● Ensure your reporting system is not shared or sent to employees to avoid possible retaliation or punishment.
● Follow up on all reports and ensure you have proper evidence before considering disciplinary action.
9. If fraud happens, handle it immediately
There are more fraud attacks than systems available to handle them. So there's a likelihood that even with the best anti-fraud prevention strategy, your business can fall victim to online and internal fraud.
Instead of panicking, create a fraud response system outlining the next course of action. This system will detail every employee’s responsibility in getting the business back in shape.
Here’s what to do:
● Inform partners (if any) and other stakeholders in the company.
● Notify the public/clients of your next step (keep certain information private).
● Report the incident to the proper law enforcement.
● Notify creditors (if any) of the present state of your business and discuss your plan of action.
● Conduct an internal and external fraud investigation.
Don’t lose your business to fraud. Act now!
If your business hasn’t been hit by fraud, it may only be a matter of time before you become a target. Don’t wait until it’s too late to protect your business from fraudsters.
While fraud prevention measures are a step in the right direction, they’re not infallible. Implementing a digital security and fraud protection solution for your business is a better option.
Not only will this solution save you time and money, but it’ll also help you with a sustainable insurance policy that will help mitigate loss if an attack should happen. This way, your business can quickly return to its normal daily activities to recuperate losses.
