With your business slowly gaining traction and recognition, the work is beginning to pile up. So much work, in fact, that your current employees are getting overwhelmed and overworked.
“Easy solution,” you think to yourself, “It may be time to hire another employee.”
Firstly, congratulations.
Secondly, stop there.
Before continuing, how extensive are your background checks when you hire someone? You may believe that hiring someone is an innocent-enough process, but let’s think about how much trust is truly involved.
You’re letting another person into your circle and giving them access to potentially confidential information. You want to ensure that you are hiring the right person.
Why are we bringing this up?
As mentioned in our last blog, November 17th kicks off International Fraud Awareness Week, a global effort seeking to minimize fraud by promoting anti-fraud awareness. A lot of business owners believe that strangers are the cause of any detriments or data breaches in their business, but that isn’t always the case. Sometimes the threats come internally.
The Association of Certified Fraud Examiners estimates that businesses lose 5% of their annual revenue to employee fraud and abuse. Small businesses are often more likely to be hit by employee fraud schemes, particularly businesses who have fewer than 150 employees. According to the U.S. Chamber of Commerce, 75% of employees have stolen from their employer at least once.
Being proactive and doing your due diligence is your best defense against internal fraud. Here are some tips to prevent it.
Know Your Employees
While every employer hopes to hire honest, hard working employees, having a formal hiring process in place and conducting background checks helps prevent fraud. Background checks are important, especially when it involves a potential employee handling cash, managing payments or bank account information for your business or your clients.
Limit the amount of access you give to employees regarding banking information by permitting a select few have access granted to those accounts. It’s important to trust your employees but it’s not necessary to give every employee access to banking information.
Audits
It’s important for businesses to regularly audit areas that involve cash, product returns, inventory or accounting. Non-scheduled audits are useful in catching any potential malpractices before they get out of hand.
The Association of Certified Fraud Examiners offers an anti-fraud protection check-up, which is an easy and effective way to test your company’s fraud health. If you’re unsure of where to start for an audit, this a great tool to see which areas need to be improved upon and corrected.
Ensure you know your numbers regularly as well. Reviewing financial statements on a regular basis, on a monthly basis if time permits, will send off alarm bells if the numbers go awry.
Direct Deposit
Encouraging your employees to receive their payment via direct deposit is not only convenient for them, but it is beneficial for you. Losing a paycheck could leave it in the wrong hands, where that person would have access to banking information and the potential to commit payroll check fraud.
Payroll fraud comprises 8.5% of occupational fraud worldwide and costs businesses an average of $72,000 per payroll fraud case, with small businesses getting hit more often than larger businesses.
Best Practices Training
Within the insidious realm of fraud, it isn’t safe to assume that all employees will behave the same way as you. Establish anti-fraud training for your staff annually. This would be a great way to address any concerns and outline the standards. It’s also a great way of letting employees know that you’re up to date on fraud schemes. Employees can’t feign innocence if you’ve outlined what is acceptable and unacceptable. Cultivate a company that promotes integrity, by adhering to your company’s code of conduct and assuring that your employees know you expect them to adhere to it too.
Shredding Practices
While shredding documents won’t necessarily deter employees from committing fraud, shredding confidential documents and storing documents in a secure, lockable file prevents sensitive information from getting into the wrong hands, be it someone outside the company or someone within.
At A1 DATASHRED, we will provide you with security containers and consoles free of charge, making it easy for you and your staff to safely dispose of confidential business records. Contact us today or give us a call at 1-888-95-SHRED to find out more!
Fraud is still very prevalent in society these days.
International Fraud Awareness Week is coming up on November 17th, a global effort seeking to minimize fraud by promoting anti-fraud awareness. The week-long campaign was established to encourage business leaders and employees to attempt to minimize fraud through education and anti-fraud awareness.
The news isn’t all doom and gloom. Some good news for fraud is that it has reduced its number of victims over the past two years. In 2017, 16.7 million people reported being victims of fraud, versus 14.4 million in 2018, meaning that overall rates fell by 15%.
Small businesses, however, are frequently targeted by fraud. According to the Association of Certified Fraud Examiners (ACFE), small businesses with less than 100 employees experience a median loss of $154,000. Surprisingly, this number is higher for smaller businesses than larger companies. Smaller businesses often lack the resources to implement internal checks and balances for their accounting systems.
You may believe that your business wouldn’t be targeted and protecting yourself is extreme, but that’s where you’re wrong. Each and every business should make an effort to protect themselves from security breaches.
Knowledge is power. Here are some common types of business fraud.
1. Identity Theft
Identity theft is one of the most frequently used tricks that costs businesses thousands of dollars. According to a 2018 study, nearly 60 million Americans have been affected by identity theft. In 2018 alone, the Federal Trade Commission processed 1.4 million fraud reports totaling 1.48 million dollars in fraud losses, with the most common categories of fraud including imposter scams, debt collection and identity theft.
Preventing identity theft begins with securing and destroying confidential information. Simply throwing old documents in the recycling leaves you vulnerable to dumpster divers or anyone who wants to get a hold of sensitive information.
As we live in an era where most business is conducted online, it’s important to password protect all your files and use strong passwords that are difficult to guess. If you’re upgrading your computers or printers, make sure you dispose of them properly. Hard drive destruction is your best defense against people who want to use old devices to their advantage.
Additionally, fraudsters can gain access to your accounts when employees lose or throw out paychecks. Paychecks contain sensitive company information, such as routing and bank account numbers. If placed into the wrong hands, your business account could be accessed, and your money withdrawn from the account. Having a separate payroll account or only offering direct deposit are strategies to mitigate the threat of fraudsters from gaining access to your accounts.
2. Payroll Fraud
You may believe that a fraud threat is only going to occur externally, but they can occur internally as well. In fact, payroll schemes occur twice as frequently in small businesses as opposed to larger companies.
Employees may ask for pay advances with no hope of paying you back. Or they could lie about hours worked on their time-sheets.
How does this happen? Well, a lot of smaller companies may not do an extensive background check on their employees. Or maybe there aren’t many security measures in place. Or maybe it’s simply an act of trust.
Conducting a background check on all employees and auditing payroll accounts will help avoid the headache later.
Internally, workers’ compensation fraud is another form of small business fraud you may come across as an owner. Worker’s compensation is the business’s defense if a worker gets injured on the job by compensating the worker for their injury. There are a variety of ways this type of fraud can be committed, so remaining vigilant and aware is key. Employees may get injured outside of work and claim this happened on the job, or they could fake an injury. Documentation and keeping up to date, accurate records and watching out for signs of fake injuries are ways of protecting your business from fraud.
3. Fake Invoices
This hack preys on any oversight that may happen in your business. Scammers create and send false invoices that appear to be for products or services the business uses. Say, for example, your accounting department is swamped during end of the month tasks and puts the payment through. The scammers are hoping that the invoice will move through to payment without any red flags, thus draining your money with no hopes of getting it back. Typically, there is usually a sense of urgency attached to these requests, where payment is being demanded to try and scare the business into paying.
Diligence and detail-orientation is key in this scenario. Ensuring your accounting department is trained to follow procedures and won’t give in to any pressure will help you avoid scams.
Small steps can go a long way in preventing fraud in small businesses. Preventing fraud begins with small steps such as shredding important documents and hard drive destruction. At A1 Datashred, we offer a variety of shredding services to the Boston and Massachusetts area, including hard drive destruction, media destruction and scheduled shredding to save you time and organization.
Call us today at 1-888-95-SHRED or get a quote online.