According to a PWC report, 51% of businesses have experienced fraud over the past two years. The fact is, there is an alarmingly high probability of your business encountering a scam. So, understanding fraud threats and gearing up to avoid them is crucial to minimize risks.
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Common Scams That Could Threaten Your Business
There are several types of fraud that businesses frequently experience. They include:
● Impersonation scams
Scammers could impersonate any number of well-known organizations, from the IRS to a utility service provider. They may even appear as a reputed charity and request a donation. Their ultimate goal is to trick your business into sharing sensitive information, transferring money, or performing some other task that may place your organization at risk.
● Business email compromise
The global annual loss for companies due to business email compromise (BEC) fraud is a staggering $43 billion. This makes BEC one of the costliest threats to businesses of all shapes and sizes. It is a type of impersonation scam that involves spoofing email addresses to target a specific individual in a company, typically at a senior rank.
● False invoicing
Scammers could fabricate invoices and bill you for services or products your business has not received. These false invoices could easily go unnoticed in large-scale companies that handle hundreds of supplier payments.
Often, this type of scam is initiated by fraudulent suppliers, who may slip in an additional invoice or add a false item to their regular invoice. Sometimes, an employee could be involved as well.
● Fake checks
This is another common scam that exploits the weeks-long process of check clearance. For example, a fraudulent customer could claim to have overpaid your business by check and may ask you to return the excess amount in gift cards. By the time the bank informs you that the check has bounced, the customer could be long gone.
● Fake suppliers
Fake suppliers could offer a range of products and services, both in person and online. In office supplies fraud, for instance, scammers can offer hefty discounts and rock-bottom prices to lure you into placing an order. But once you pay a deposit, they will cut all ties and disappear.
● Identity theft
An excellent example of identity theft-led fraud is scammers impersonating your business and selling inferior-quality products under your brand name. As a result, they could cause substantial damage to your company’s reputation.
Protecting Your Business From Fraud
Both business owners and employees have a critical role in fraud prevention. Here are the essential measures to take as an individual and organization.
At an individual level:
- Follow company protocols
Standard procedures exist to safeguard both the business and its employees from impending threats. Adhering to them is necessary to minimize risks.
- Verify facts
Most fraudulent activities seem legitimate at first glance, which is why businesses fall victim. Therefore, substantiating facts is important when dealing with internal and external stakeholders.
For example, you may receive an unusual call from a senior executive asking you to share sensitive business data. If you don’t recognize the number, reverse check it on PhoneHistory to see if it is registered under the name you were given. If not, find their number and call them up to verify the request.
- Think before you click
Imposter emails typically use malicious links and downloads. These are not always easy to recognize. However, anti-virus software could alert you to virus-infected attachments. As for identifying fraudulent links, one option is to hover the cursor over the text. If it doesn’t match the URL that appears in the bottom left corner of your screen, proceed with caution. As a safety measure, google the relevant website and access it by clicking on the search results.
- Protect your devices
Install a virus guard and update your software to minimize virus and hacking risks. Use a VPN to prevent unwelcome prying on your internet activities. Avoid storing sensitive information in unsecured cloud storage spaces, which could compromise data security. Most importantly, adopt safe password practices for your devices, accounts, and documents.
At an organizational level:
- Screen suppliers
Know Your Vendor (KYV) procedures should be a mandatory part of supplier selection to mitigate supply chain risks. You should visit vendor premises, seek recommendations, check registrations and licenses, carry out a credit check, and screen them for unethical and fraudulent activities.
- Conduct employee background checks
A thorough background check is a must when hiring employees. But most companies do not pay enough attention to this critical recruitment task. So, ensure you carry out a comprehensive employee screening when recruiting new staff, especially for procurement and financial functions.
- Set up monitoring systems and controls
Review processes across the organization and set up standard operating procedures (SOPs) to streamline and standardize regular business activities—from invoice processing to customer refunds. Include sufficient monitoring mechanisms and controls, and assign clear responsibilities and KPIs to each individual, holding them responsible for assigned tasks. It could help prevent loopholes that give rise to scams, especially those initiated internally.
- Define company policies for fraud prevention
Setting up detailed policies will allow employees to understand the company’s expectations in terms of how they should behave and the consequences of disregarding protocols. You must also include a whistleblowing policy to encourage staff to come forward and notify management of any fraudulent behavior.
- Provide employee training
Regular training in common scam threats, fraud identification and prevention techniques, and company protocols is also essential. Consider including at-site workshops, fraud prevention campaigns, and online training modules as a necessary part of employee onboarding and regular training programs.
To Recap
Business scams are exceedingly prevalent and can result in substantial financial losses for your business. Recovering from them may take years, and the reputational damage could be hard to amend.
They can appear in numerous forms—from impersonation scams and identity theft to fake invoices and checks. Often, they are externally driven. However, at times, they may also involve your employees.
But preventing business scams is possible with proactive measures. A systematic approach at individual and organizational levels can help significantly minimize many of the risks and create a safe business environment.
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