Business Nightmare: Fraud

By Brett Melson Monday, December 27, 2010

Small or large, any business faces many threats: from economic changes, competition, rising costs, and a long list of related challenges. But one threat is often overlooked when dealing with pressures of others, that silent, looming killer: fraud.

From shifty employees and unscrupulous customers to faceless hackers and phishers, taking measures to safeguard your company is imperative.

Unfortunately, employee fraud is one of the most difficult to detect and can occur right under your watchful eye. That seemingly dedicated, trusted employee just may be your worst nightmare. Busy small business managers or owners are very concerned with expanding growth of their business, and may not be as detail-oriented as they should be. Sometimes employees take advantage of the fact that that the boss isn’t looking and thinks they are doing a great job. (Even honest employees can be tempted when they see large sums of money right in front of them.)

Being proactive and having a written code of conduct in place is the first line of defense. Access to financial assets and information should be restricted and carefully controlled, making sure there is a separation of duties where no single employee has too much responsibility within the system. Internal, external, as well as surprise audits should be conducted. Accounting can be altered before regular internal or external audits, but knowing surprise audits may occur helps to remove temptation and increases fraud detection.

Besides employee fraud, businesses are more aware that they are often the target of a host of schemes that customers and contractors perpetrate. Owners and managers must be ready to combat bad checks from customers, use of stolen credit cards, returning items not purchased at a business, and filing fraudulent injury or liability claims. Contractors may overcharge, over bill, attempt kickbacks, or simply not provide the work or service as agreed.

And, of course, businesses as well as individuals must be increasingly protected from fraud perpetrated by electronic means. Research and consider a number of safeguards, not just one, as there is no silver bullet that covers everything. Many businesses are now using a computer data storage facility with round-the-clock security to store critical information.

Thieves also use low tech methods, so don’t overlook the importance of shredding all documents containing personal information with a cross-cut shredder.

For small businesses, preventing fraud may be especially tricky because of limited time and resources. But experts agree, research and identify risks ahead of time. Then follow through, taking measures to protect yourself and your company. Remember, shortcuts can cost a lot in the long run!

*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.

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