Home » Guides » Operations » Business Security » Guarding Your Business against Fraud

Daniel Kehrer

Guide to Guarding Your Business against Fraud

Fraud against small business is rising. Here's what you can do to protect yourself

By Daniel Kehrer, Editor, Business.com & Work.com

The facts on fraud are frightening. Economic crime – or "asset misappropriation" in CPA-speak – poses a growing threat. A PricewaterhouseCoopers study estimates that nearly half of all businesses will be victimized in the next two years. And no company or industry is immune. The Association of Certified Fraud Examiners (ACFE), a leading provider of anti-fraud training and education for business, says small business owners have every reason to worry: Per-employee losses from fraud in the smallest businesses are 100 times greater than those at their larger counterparts. Yikes! And many small business owners may have a false sense of security. While businesses are reporting a higher number of incidents, most fraud is detected by accident. These factors can make your business a fraud victim:
  1. Inadequate pre-screening of employees. Small businesses do background checks on potential hires less often than big companies. Would-be thieves know this and gravitate toward smaller companies. About seven percent of employees have a history of workplace theft and fraud.
  2. Limited internal controls. Small firms that are victimized usually lack the manpower to implement effective controls. Internal controls of some type are critical for a small business.
  3. Too much trust. Sadly, the very thing that makes a small business a pleasant place to work also enables thieves within it to succeed.
Business.com's "What Works for Business" blog is a great way to keep up with the latest solutions, trends and strategies for small and medium business — including a full range of other security issues.

Action Steps
The best contacts and resources to help you get it done


Give yourself a fraud prevention checkup

How vulnerable is your business to fraud? Are your current controls adequate to prevent it? Find the answers with a self-diagnostic.
I recommend: The Association of Certified Fraud Examiners (ACFE) has a terrific Fraud Prevention Checkup that you can download free. It's a simple but powerful test of your company's fraud health. You can also order a Fraud Prevention CD-ROM that has the Checkup along with other fraud prevention resources.

Bring in professional fraud prevention help

Strong fraud prevention measures can help bolster confidence in your business among investors, lenders and outside directors.
I recommend: ACFE can help you locate an expert to help with fraud detection and prevention. Their Fraud Resource Center lets you search for an examiner in your industry and area. The Fraud Examination Tools include a fraud prevention checklist, case summaries and sample documents.

Offer employees a way to anonymously report abuses

Employees often know what goes on in a store, office or warehouse. Give them a way to report their concerns...
I recommend: Loss Prevention Specialists offers a service called ResponseLine which allows employees to anonymously report any business abuses 24/7 via a toll-free number.

Develop a loss prevention program

Avoiding losses starts with recognizing the risks and putting basic preventive measures in place.
I recommend: Get prevention ideas, tools, consulting help and protection from Loss Prevention Specialists and the Association of Certified Fraud Examiners.

Try to recover your losses

Civil Recovery laws in 49 states and the District of Columbia allow businesses to recoup losses due to theft. These laws let you to pass costs due to theft and security onto the offenders rather than your honest customers.
I recommend: Get details on Civil Recovery and how to use it.

Conduct pre-employment testing

Pre-employment tests can help you do a better job of hiring. There are great, affordable products that let you conduct the testing yourself.
I recommend: G.Neil has specialized in providing small businesses with human resources solutions for many years.Their employment testing products and services offer affordable solutions for small business. Test for retails skills, clerical skills, reliability, supervisory potential and many other skill sets. Buy the materials or test online. ExpertRating and Hire Success also have affordable testing solutions.

Hear from an authority on forgery, embezzlement and fraud

Frank Abagnale, who's been associated with the FBI for over 30 years, is one of America's top experts on business fraud prevention. He conducts seminars, does consulting work and has written books and has other resources available on his Web site.
I recommend: Abagnale has also done free seminars for Office Depot on how to protect your business from fraud.

Tips & Tactics
Helpful advice for making the most of this Guide

  • The key to fraud prevention is dividing responsibilities among employees. To prevent and detect fraud, rotate employee assignments. Team different employees together or with you.
  • In the cash realm, skimming involves a crooked worker stealing money from the business before it is received and recorded.
  • The most harmful schemes usually involve fraudulent payments from your business bank account. For example, an employee might submit a false invoice, which your business unknowingly pays, to the benefit of the thief.
  • In the non-cash area, crooked employees usually opt to pilfer items they can put to personal use, such as clothing, jewelry, groceries, electronics, office equipment and supplies.
  • If you provide credit to customers, beware of a type of fraud called the "bust out." Unscrupulous customers might buy large amounts of merchandise quickly, running up big bills they never intend to pay. Some start by ordering small amounts and paying on time to establish good credit. Once established, they go for the bust-out.
  • Take physical inventory regularly and check daily receipts against lists of items sold. Secure inventory and supplies.
  • Hire a CPA to examine your books.

The official source of Guarding Your Business against Fraud is
the Auditing and Fraud page at Business.com

Trading Fraud Detection Software
Monitor Both Insider Trading & Front Running With Our Easy To Use Software. Discover The Compliance 11 Difference. Get A Free Demo Now!
Front Running | Insider Trading
www.Compliance11.com
Operational Risk Management Solutions, Software & Services
Manage enterprise-wide operational, safety, environmental, quality, security, and financial risk through continuous process improvement & compliance.
About Us | Demo | Customers | White Papers
www.SyntexSolutions.com
SAS Fraud Detection Software
SAS Fraud Management Provides powerful, end-to-end fraud detection & prevention! Trust the Leaders- 30+ yrs in banking & financial services-Get Info!
White papers | Success Stories
www.SAS.com
Free Landing Page Templates and Email Companions
Need a shortcut to better Pay-Per-Click Conversions? You've got it! Get five of our proven Landing Page & Email Templates free.
Lyris.com

Recommended Solution Providers

Yahoo Small Business: Reducing Fraud
Yahoo Store is designed with risk tools to help you avoid fraudulent orders and patterns.

Microsoft: Small Business Accounting
Reviews, news and product overview for Microsoft's small business accounting solution.

TurboTax: Business Products
Three business tax software offerings with demos, tips and pricing.

QuickBooks Enterprise: Business Management Software
Presents features and functionalities of QuickBooks Enterprise Solutions 6.0.

Everest Software: Business Management tools
Summary of Everest business management software programs for SMB's.

Intuit: Quicken
Manage receivables, payables and tax requirements with Quicken for Business.

NetSuite: Small Business
Provides data sheet and feature summaries for the NetSuite small business management solution.

MYOB: Management and Accounting Software
Offers guides, support, services and product specifications for Windows and Mac management and accounting software.

PCMag: Financial Software Reviews
Reviews of tax, bookkeeping and accounting software solutions.

NAIC: Insurance Fraud
Directs users to forms where they can report insurance fraud.

Best Sites to Learn More

About.com: Small Business Bookkeeping
Keep your books in order with this guide to tax accounting and bookkeeping,

Inc.com: Fraud Articles
Collection of articles on business fraud.

Entrepreneur.com: Financial Management
Offers financial management tools and articles to keep you on top of your business finances.

Small Business: Taxes And Management
Presents tax and management tips, news, reports and links for small business.

Better Business Bureau: Good Business Practices
Collection of best practices to keep your business safe, productive and legal.

Fraud.org: Information Center
Collection of news and reports on common fraud schemes. Also offers scam reporting resources.

AICPA: Ethics and Fraud In Business
Presents real-life case studies to help you understand how fraud happens.

ACFE: Fraud Detection Articles
Learn how to detect fraud in your business with this collection of articles.

IRS: Compliance & Enforcement
Read about criminal enforcement, tax fraud alerts, compliance news, and FAQs.

Best Blogs and Forums

Small Business Community Forums
Online small business community with forums for tax and financial advice.

Accounting.com: Forum
Helpful, active accounting and financial forums with advice on procedures, software and taxes.

Universal Accounting: Forum
Post accounting and bookkeeping questions in this busy forum.

Weekly Fraud Examiner: Blog
Weekly blog exploring business fraud issues.

ZDNet: Threat Chaos Fraud
Blog exploring fraud and security issues that threaten business.



FEATURED LISTINGS

What WorksTM for Business Security

Frances Sharpe

Preventing Employee Theft

Protect your business from employee theft with a loss prevention program
Employee theft robs American businesses of billions of dollars every year. In fact, security experts estimate that as many as 30 percent of all employees engage in some form of theft, be it office supplies, high-end merchandise, machinery or parts. The first step to preventing pilfering in your business is acknowledging that employee theft is a real threat. The next step is taking action to protect your company. Implementing a ... Read more

Free B2B search marketing whitepaper, B2B Search Marketing Strategy Guide: Advice From the Pros.
Download

To advertise on Business.com, click here