Saturday, June 22, 2024

How To Avoid Being a Victim of Business Frauds?

Being a small business owner in today’s modern economy can be an arduous task. The constantly evolving technology and tough global competition make it hard to rise to the top regardless of management’s expertise and product quality.

Given all the obstacles to a company’s growth, brands rarely think about due diligence and accounting excellence. In fact, entrepreneurs often perceive these procedures as a necessary evil. Instead of spending money to improve their risk management, they try to skim on accounting in favor of marketing and sales.

As a result, this makes brands susceptible to fraud.

What Is Fraud?

“Fraud refers to deceptive practices that individuals and businesses commit to gain unlawful benefits or to deny victim’s right,” according to CST Group, one of the elite CPA firms in Northern Virginia. The risk of fraud is especially high for new SMBs, as most of these businesses have limited knowledge about the subject or haven’t implemented appropriate countermeasures.

It’s vital to note that fraud can come from anywhere, including team members and partners. In other words, a brand can get scammed by its customers, suppliers, employees, and third parties.

Executing fraud can be a complex process that involves numerous steps. Besides having a good accounting team, a brand also needs an IT specialist on the payroll to prevent digital attacks. Keep in mind that frauds are constantly evolving, and there isn’t a single solution that can prevent all of them.

7 Methods for Preventing Business Frauds

Here are the 7 best ways companies can prevent being a victim of a fraud:

Always Be Skeptical

Most organizations experience some sort of fraud during their lifetimes. This is especially true of brands that have been in the business for a while and have numerous clients and partners. So, it’s usually not a question of whether you’ll be a victim but when.

We suggest that you have a healthy dose of skepticism in all your business dealings, paying close attention to anything that might be off. Brands should revise all their daily operations, from new opportunities and contracts to documents and transactions.

Learn About Your Business

The best way to prevent fraud is to have a keen understanding of your daily operations, but also common industry practices and norms. The most important thing is assembling a trustworthy team, as these employees will become your first line of defense. 

You should also do a background check of your partners, products and services, market, and legal obligations.

Identify Areas of Risk

Prevention beats the cure when it comes to fraud. Different areas of your business require different measures, and it’s vital for your team to understand all the systems and technology that help them perform security tasks.

Introduce an Actionable Strategy

If you wish to have good anti-fraud measures, hiring a veteran financial team is not enough. Instead, the process requires a thorough strategy and company-wide involvement.

First off, a business should introduce technology and procedures that would help control transactions and track other outside threats. After that, the staff should be taught how to behave in different situations and, most notably, what to do if they notice anything suspicious.

Involve Outside Factors

Many frauds come from the outside. That being said, your partners, customers, and other stakeholders should be well aware of your business practices and comply with them. You need to explain how invoicing and the entire payment procedures should look like. The same goes for material and product deliveries.

To ensure complete safety, it’s vital to perform a background check of all the people you’re working with. This includes social media checks and getting any other legally-obtainable information you can.

Put Focus on Finances

If you’re serious about financial fraud, you need to have a good understanding of the laws but also accounting standards. Financial knowledge is crucial for brands that use different methods of payment and/or employ several accounts.

Among others, you should learn more about the person responsible for the invoicing on the other side. After every transaction, check the statements for validity.

Implement Cyber Security Measures

Introducing cybersecurity measures is critical for companies that do most of their business online. The best way to protect a brand from intruders is by employing a top-tier IT professional who will be responsible for all security measures.

Cyber fraud prevention involves getting firewalls and antiviruses, and creating a backup of your data. It’s also important to have a website with HTTPS security protocol and two-way authentications when necessary.