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The Most Common Types of Fraud in Small Businesses
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.
November 14, 2019