Protecting your business from fraud

November 7, 2012

Protecting your business from fraud is very important, especially after reports of an increased risk of fraud for U.S. businesses. Fraud can ruin a business fairly quickly and a report found that small to mid-size companies have the highest risk of fraud.

Fraud can be difficult to detect and it is estimated that 75 percent of employees have stolen from their company at least once during their career, according to the International Foundations for Protection Officers.

Businesses can take steps to prevent fraud but they first must understand the different types of fraud and ways to recognize it.

The most common types of fraud that businesses face from their employees are bookkeeping and accounting fraud. Employees have access to the company's bank accounts and are able to pay false invoices to their personal bank accounts. Investigations have found that more employees guilty of fraud are using software to duplicate company checks to drain money from the company's bank account. Some employees have also provided false receipts on expense reports to receive money from the company.

While the threat of fraud seems scary, there are several steps businesses can take to prevent and catch fraudulent activity by their employees. It is important for businesses to establish good hiring practices. Companies should take advantage of the use of background checks, references and the ability to conduct several interviews before hiring a new employee.

Another way businesses can prevent fraud is by installing virus protection software and a firewall system. These systems can detect fraudulent or suspicious activity in the company's bank accounts and other secure areas. Employers also need to educate employees on the importance of keeping passwords secret and also require everyone to change their passwords every couple months.

Businesses should consider getting an annual audit to find any possible fraud and help address possible areas of fraud within the company. Businesses should also establish a zero-tolerance policy for fraudulent activity or misconduct.

Preventing fraud may seem challenging but it is very important for businesses to take this risk seriously. Working with a business law firm can help companies set forth preventative policies and practices that will help reduce their chances of being victims of fraud.

Source: Smart Business, "How to protect your business from internal fraud," Nov. 1, 2012