As a small business owner, fraud prevention may be at the bottom of the barrel when it comes to your actionable priorities. It should, however, be at the top.
The ACFE, or Association of Certified Fraud Examiners, reported that in 2016, organizations with fewer than 100 employees experienced a median fraud loss of $150,000. Imagine that loss to your bottom line.
There is some silver lining here, which is that there are a few easy steps that small businesses can take in order to detect and deter fraud before it happens to your small business.
The Most Prevalent Types of Fraud
Fraud comes in many shapes and sizes, it’s not one size fits all, which is why it can be difficult to manage and assess. To simplify things, start with examining your relationships with employees on the inside and vendors on the outside. Even if someone may seem to be the most trusted and loyal individual to the organization, this person could be in financial trouble or he or she can be resentful of the business. These stress factors can be the cause of someone committing fraud against your organization. Or, it could be a trusted vendor or supplier that is sending your company inferior products to reduce expenditures and/or misrepresenting themselves and the invoice.
There is also fraud of intellectual property and trade secrets, which can be a more complex type of fraud. Regardless, it is very serious indeed. Copyright infringement can cause major damage to your business, including your brand and your reputation, making recovery a very long to almost impossible process.
Despite that there are many types of lingering fraud, there are simple ways you can make your small business safer and it doesn’t need to cost a lot either. It comes down to reducing risk.
Investigate Your People Before You Hire Them
While background checks may seem like an unnecessary additional cost, it can save you a lot in the future. It is imperative you investigate candidates no matter how nice he or she seems. Run a criminal background check and reach out to references. Even get on the phone and call the candidate’s references (or, better yet, others you might know at that company.) A quick sweep of a person’s background can uncover a history of fraud or red flags, giving your small business the intel needed so that you know not to bring this person onboard, or be forewarned of potential issues.
Open Communications and an Open Door
Communication is also critical to preventing fraud. Employees that are not management may notice things that leadership cannot see. Employees should feel comfortable and safe speaking up and voicing their concerns. Your people need be able to feel like they can bring up anything suspicious to management and leadership. For employees that may be encountering financial hardship, some small businesses have an added benefit of offering small loan services. These are paid back through payroll deductions and an alternative to stealing.
>> Tip: Watch for people who refuse to take vacations, that is, who are concerned that others have access to their files and processes.
A Clear Fraud Policy Statement for Employees
While you may feel that fraud is against company policy and that it is common sense amongst staff, it still needs be stated.
There should be a contract in place, one that all employees must sign. Your small business needs to put your expectations in writing. Include a statement that your organization values honesty in its brand and its employees. Also, be clear about the consequences – and enforcement policies – should an employee commit fraud.
Investigate Your Vendors and Suppliers
If you are looking to do business with a vendor, keep in mind that the supplier you choose is just as critical to your organization as your own people are. They are an extension of your brand. Run a sweep of any vendor and look for potential red flags. Some things to look for are irregular invoice patterns, pending lawsuits and even a criminal past.
Safeguard Your Small Business’s Intellectual Property
Common targets of potential fraud include stealing copyrights, trademarks, patents and contact lists. Add this as part of your Fraud Prevention Policy. Add a section regarding intellectual property (IP) and make sure that your employees are aware of it. You should consider registering any trademarks and patenting any intellectual property.
A good first step here is to actually create a list of your intellectual property and what is most important for you to protect. Then creating a plan, such as limiting and tracking access, to mitigate the risk of IP theft.