Fraud is a real risk for all businesses, from large multinational corporations to small local companies. Encourage your clients to implement internal controls like segregating personal and business accounts, documenting sales receipts and preparation of bank deposits, requiring two signatures on checks and more. Also, ensure their employees are trained to spot warning signs of fraud and have a process for reporting suspicious behavior.
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Create a Fraud Hotline
Fraud detection is the first step in preventing fraud, but many companies do not have an effective way to detect it. According to the ACFE’s Report to the Nations, more than 42% of occupational fraud cases are seen through a tip, and more than 55% of those tips come from employees. Create a hotline with multiple reporting methods to increase the likelihood of detecting fraud. It will allow employees to choose how they feel most comfortable using it. Also, train employees to look for red flags such as spoofed email addresses in business email compromise and phishing attempts. Training employees can help prevent costly fraudulent activity and mitigate financial losses, regulatory fines, workers’ compensation claims, negative publicity, and loss of trust and morale.
Create Separate Bank and Credit Card Accounts
Fraud can hurt a business’s bottom line, but it doesn’t have to be inevitable. These best practices can help reduce chargebacks and protect your business from fraud. Fighting back against chargebacks resulting from friendly fraud and recouping the lost money is the process of chargeback recovery. A client uses their credit card to buy something online and then contacts the credit card company to dispute the transaction. Because the consumer will make credible and sincere assertions, this sort of fraud is also called friendly fraud. Encouraging your clients to sign up for paperless bank statements and shred old documents can prevent unauthorized access to personal or business information. Similarly, requiring that employees use credit cards for business purchases rather than debit cards makes it more difficult to mix business and personal expenses.
Additionally, educating employees on fraud warning signs and how to report suspicions is important. Reminding them of the fraud reporting hotline will improve their chances of recognizing any suspicious behavior, and it’s also a good idea to make sure that everyone is aware that all reports are taken seriously.
Educate Your Employees
Your employees should know the definitions of different types of fraud, how they can be detected and where to report suspicious activity. Training should also cover why fraudsters commit crimes, which can help your team recognize red flags and warning signs. Your team can be a great source of information about fraud as it is occurring, as tips via hotlines are the number one way that frauds are detected, most of which come from fellow employees. It would help if you encouraged your staff to use the confidential hotline and ensure they can file a report without compromising their identity. It is a cost-effective strategy that can reduce fraud losses significantly. It is especially important for small businesses, as a single criminal act can devastate the company.
Implement Internal Controls
Internal controls are a key element in fraud prevention. They help to reduce the opportunity for someone in your business to commit fraud by limiting access, requiring multiple people to sign off on expense reports, establishing physical restraints and ensuring that all transactions are documented. These internal control policies should be written and communicated to employees to minimize opportunities for fraud. They should be tested regularly, and any results should be reported to management. If fraud does occur, it is important to review the incident in detail and follow through with any corrective measures. It is also important to prosecute the perpetrators to deter future would-be offenders. Without a proper fraud detection strategy, your business could risk losing substantial funds and sacrificing the trust of its stakeholders and customers.
Review Your Accounts Daily
Reviewing account activity and statements with online banking options is easier than ever. Businesses should do so frequently, especially if they use checks to pay for inventory or other expenses. Doing so will help ensure that paper-based statements have not been manipulated. Business owners should audit their assets and financial statements regularly. It will prevent embezzlement schemes from going undetected. Businesses should also be careful not to over-replenish petty cash, which could lead to asset misappropriation.
Additionally, it is good for businesses to rotate their accounting and bookkeeping tasks among employees. It can help prevent fraud due to one employee accessing sensitive information. In addition, a formal hiring process and background checks can help reduce the chances of bringing on a fraudster from another employer.
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