DON’T BE A VICTIM OF FRAUD! PROTECT YOUR BUSINESS FROM INTERNAL THREATS
At a car dealership, a long-standing and trusted salesperson colluded with an accomplice to submit fraudulent loan applications, inflating vehicle prices and trade-in values. They pocketed a significant portion of the loan proceeds, eventually getting caught through an internal audit, leading to legal action and the dealership’s efforts to recover the funds and restore its reputation.
As the example above shows, internal fraud, also known as insider fraud, is carried out from inside an organization by its own employee(s). Although it may only be committed by a few, fraud can have a large and lasting impact on your business.
According to the U.S. Small Business Administration, in 2022, the number of small businesses, those with less than 500 employees made up a staggering 99.9% of all U.S. businesses operating in 2022. Unfortunately, these smaller organizations exhibit specific vulnerabilities to fraud. They often lack the resources of their larger counterparts to sufficiently implement internal checks and balances. In 2022, small organizations suffered a median loss of $150,000 from fraud, as compared to mid-sized organizations (1,000 to 9,999 employees) that had a median loss of $100,000.
Key reasons why you should prioritize fraud prevention measures in your organization:
- Financial Losses: Fraud can result in significant financial losses for your business, including stolen funds, lost revenue, and the costs associated with investigating and rectifying the fraud.
- Reputation Damage: Fraud can damage your organization’s reputation, making it more difficult to attract new customers
- Legal Liability: Businesses can be held legally liable for fraud committed by their employees or agents. This can result in lawsuits, fines, and even criminal charges, leading to further financial losses and damage to your organization’s reputation.
- Customer Trust: Fraud can erode customer trust, which is vital for building lasting relationships and driving business growth. If customers feel that their personal and financial information is not secure, they are less likely to do business with your company in the future.
How to prevent internal fraud?
One of the most effective ways to protect your business from fraud is to implement fraud detection measures. This involves using tools and technologies to monitor your business operations and identify any suspicious activity that could be indicative of fraud.
Fraud detection measures can be implemented across all aspects of your business, including financial transactions, customer interactions, and employee behavior. By monitoring these areas for signs of fraud, you can quickly identify any potential threats and take action to prevent them from causing damage to your business.
Here are some steps you can take to prevent internal fraud:
- Create a Culture of Honesty and Transparency: Encourage open communication and reporting of suspected fraud, and make sure employees are aware of the consequences of fraudulent activities.
- Conduct Background Checks: Conduct background checks on all employees and contractors to ensure they have a clean history and are trustworthy.
- Segregate Duties: Separate key business functions such as authorization, custody, and record-keeping to reduce the risk of fraud.
- Implement Strong Internal Controls: Establish and maintain strong internal controls to prevent and detect fraudulent activities. These may include regular audits, password protection, and security measures to protect sensitive information.
- Provide Employee Training & Update Company’s Employee Handbook: Train employees on how to identify and report fraudulent activities. This can include information on how to recognize red flags, such as unusual behavior or discrepancies in financial records.
- Monitor Employee Activity: Monitor employee activity to detect suspicious behavior, such as excessive overtime or unauthorized access to financial systems.
- Conduct Regular Audits: Conduct regular audits of financial records and other business processes to detect and prevent fraudulent activities.
Schwartz Ettenger counsels our clients that regardless of their size, any company can be the victim of employee fraud. Contact Schwartz Ettenger today and let us help you develop a proactive fraud protection plan that can save you and your business many thousands of dollars and the heartache of having to file fraud charges against a once-trusted employee.