Financial Fraud: 10 Ways to Protect Your Business
Every business can fall victim to fraud, which can be a big financial risk. You might ask why scammers go after small businesses when there are bigger companies out there.
The fact is, fraud can happen to any business, no matter its size. Small and midsize businesses are just as likely to face issues like phishing, hacking, wire fraud, and insider payment fraud.
It’s important to know about these risks and how to protect your business.
1. Educate yourself and your employees
Using common or reused passwords and storing them near computers makes it easy for fraudsters to access sensitive information. Protect against this by training your organization to recognize and prevent fraud.
These sessions should cover topics like spotting phishing emails, understanding the importance of strong passwords, and identifying unusual financial transactions.
2. Do an employee background check.
Before hiring a new employee or contractor, it’s important to do a thorough background check to know exactly who you’re bringing on board.
Don’t just rely on references and work history; digging deeper is necessary.
For some roles, make sure you’re following legal guidelines for these checks, and consider using a trusted screening service.
Once you’ve chosen your top candidates, do a background check before making your final decision to uncover any possible risks to your business.
3. Protect your computer systems.
Hackers are good at breaking into computer systems, so it’s necessary to set up a strong firewall to block unauthorized access and watch for any unusual activity.
You should also secure your systems by using strong, unique passwords for each one and turning on multi-factor authentication. This adds extra security and makes it harder for anyone to get in without permission.
Be sure to back up your files regularly, either daily or weekly, and keep them in a safe place. This way, if something goes wrong with your system, you can quickly restore your files and keep things running smoothly.
4. Perform unannounced internal audits.
Surprise internal audits give you a true, unfiltered look at how your company operates day-to-day.
By conducting audits without warning, you can see how business processes and internal controls work without employees having time to prepare or alter records.
One big benefit of unannounced audits is that they can discourage fraud because employees know they could be checked at any time, making them more likely to follow company rules.
These audits also help you find issues that scheduled audits might miss, like mistakes in financial records, unauthorized transactions, or deviations from standard procedures.
5. Maintain detailed, accurate records.
It’s understandable that business owners might find it challenging to manage daily operations and prefer to keep records brief and concise.
However, staying organized and maintaining thorough records can significantly protect your business from fraud.
Detailed and accurate documentation allows you to monitor cash flow, track incoming and outgoing funds, and verify contractor bills against the work completed.
6. Inspect all invoices before making payments.
Carefully check all invoices before making any payments to make sure they’re legitimate.
This means confirming that the amounts match what was agreed upon, verifying quantities, and ensuring any discounts or credits are correctly applied.
Scammers might try to take advantage by submitting fake or inflated invoices, but by reviewing each invoice closely, you can catch these issues and prevent unauthorized payments
7. Automate your systems.
Manual systems often involve a lot of data entry and handling, which can lead to mistakes or things being overlooked. The more you automate your financial processes, the better you can prevent fraud.
Automation reduces the chance of human error, ensuring data is entered and processed accurately. This helps minimize mistakes that could create vulnerabilities or allow fraud to happen.
8. Restrict access to sensitive information.
Limit access to sensitive information by letting only authorized staff handle important data like financial records, customer information, or payment details.
By restricting who can see this data, you reduce the chances of it being misused or accidentally exposed. This lowers the risk of insider threats, where employees might commit fraud or leak information.
It also helps prevent external hackers from taking advantage of weak points, like a compromised employee account, to access valuable information.
9. Adopt multi-factor authentication (MFA).
Boost your security by using multi-factor authentication (MFA) for accessing financial systems and sensitive data. MFA adds extra protection by requiring both something you know (like a password) and something you have (such as a mobile device or security token).
10. Use data protection software.
Data protection software is significant for protecting your business from financial fraud. It turns sensitive information into a coded format that only authorized users can read. This means that even if fraudsters access your data, they can’t understand it without the decryption key.
Also, many industries have rules that require protecting sensitive information. Using encryption helps you meet these regulations, avoid legal issues, and protect your reputation.