To the tune of an estimated annual $7.4 billion loss, fraud poses a major global threat to all types of organizations. Small businesses with fewer than 100 employees are hit even harder than larger corporations, carrying over half of the crime load and, at almost double the losses, experiencing a higher than average cost per event.
According to the Association of Certified Fraud Examiners (ACFE), weak internal controls and fraud prevention protocols are the number one reason these crimes occur. Having systems in place and a solid strategy around internal anti-fraud controls results in overall quicker detection and thereby lowers losses incurred. Here are the top ways you can protect your business.
Stop playing ostrich. Accepting that fraud does happen and having awareness that this could happen to you are paramount. Understanding the modalities through which fraud occurs and identifying the vulnerable hotspots within your organization are key to both preventing and combating these crimes. When identifying weak spots, remember to also assess risk with customers, contractors and third parties.
A focus on culture. Building a transparent culture of checks and balances, honesty and transparency as well as a focus on maintaining and building happy employees is one of the best ways to prevent fraud from arising internally.
Employees who are satisfied in their roles and overall happy with their jobs have more to lose and thereby less incentive to commit fraud.
Educate to eliminate. Help your people help you. Small businesses often don’t have training programs for managers and employees to help identify the “red flags” and “gray areas.” Consider investing in training your people to help uphold your core values. With this, a stated anti-fraud policy in the employee handbook or code of conduct helps to reinforce your position.
Take a tip. Noting that an estimated 40% of all fraud cases were originally detected with an internal tip-off, with a third of those tips coming from outside parties (such as customers and vendors), those companies that had encouraged reporting systems, such as hotlines, detected and resolved fraudulent activity more quickly than those without measures in place.
Technology upgrade. With technological advances, why aren’t businesses better at preventing such crimes? Lack of full-spectrum fraud detection software across separate platforms and multiple disparate legacy systems in place turn accurate detection into one of manual tracking and audits across the multiverse of papers, platforms and processes. Seek to harmonize your digital and paper trails into a unified system and protocols.
Surprise audits. Considering the average time of detection for fraud crimes is about one year, increasing the frequency of internal audits helps to catch these activities earlier (and, considering most victim companies recovered nothing, also helps with loss prevention). More than this, companies that proactively implemented the “surprise audit” experienced the largest reduction in fraudulent activity.
Take active measures. Most importantly, take an active stance and implement measures that combat fraudulent activity. Organizations can reduce the fiscal damages and impact fraud creates by pursuing multilevel accountability, internal controls and policies that actively detect fraud.
Those that take a “passive” stance are likely to experience schemes that persist for much longer, resulting in higher overall losses (and future headaches).
Insurance coverage. Even the most risk-averse business owner cannot cover the unforeseen. The best way to minimize the impact of fraud is to have an insurance policy in place. We can help you better understand your overall risks and evaluate which commercial crime insurance plan is right for you. We’re here to keep you covered, and we’re just a call or email away.