According to Security Magazine, fraud costs organizations an average of $1.5 million a year. This is definitely not an amount any executive can gloss over because, on top of the financial damages it brings, fraud can also destroy a company’s reputation.
Fraud prevention should be a top priority for businesses big and small. It’s a way to future-proof your organization and prevent business failure. Especially if you have been in business for years, it’s important to protect your assets and your reputation as fraudsters are using new tools and approaches to steal identities and cause considerable damage to vulnerable organizations.
Even if you haven’t been a victim of fraud, it’s best not to wait until it happens to you. The good news is that it’s never too late to set up a system for detecting, preventing, and mitigating the effects of fraud on your organization.
1. Know what risks you are dealing with
The first step to preventing fraud is knowing what it looks like. Awareness is the foundation of effective fraud prevention, so it’s important that you spend time and effort learning the types of fraud that could happen in your business.
The most common is payroll fraud. This is when an employee alters their timecards in such a way that these do not reflect the employee’s actual productivity. When this happens, you risk paying an employee for not getting any work done.
Tax fraud is also common, but it’s also a serious offense that businesses must not get caught in. In addition, there’s also the risk of identity theft and intellectual property theft to worry about. By taking the time to learn about these types of fraud, you can determine the right strategies and tools to use for preventing them.
2. Do strict background checks legally
When you are just starting out your business, it matters a lot to make sure your employees and everyone else in the company are trustworthy. Preventing fraud starts from knowing who you are dealing with and seeing if they have the potential to lie, cheat, and steal.
Doing background checks is often a controversial topic. If you are not careful, you could be flagged for discriminatory recruitment practices or end up hiring someone who has had fraudulent dealings before. It helps to know your state’s laws on background checks and see if your current recruitment policy complies with the standards of the Fair Credit Reporting Act and other guidelines. You may want to check with your legal advisor to make sure.
If you are going to push through with a background check, you will need to ask an employee if they will consent to one. Once they have given their permission, consider reaching out to a third-party entity. With a background check company, you can find out if an employee has had any legal problems before. In case they have had one, give the employee time to explain the situation and clear their name.
3. Invest in verification tools
Identity verification is an important part of preventing and detecting fraud. Considering how easy it is for anyone to forge identities, you will need to use the right tools. Whether you are onboarding new employees or approving an application for a loan, you will need to check if you are dealing with legitimate individuals or organizations.
When it comes to verifying new employees, it’s best that you call character references from their previous workplaces. You will also need to check their identities based on their social security numbers. You can use the Social Security Administration’s Social Security Number Verification Service to check if their names and numbers match the agency’s records.
Consider using biometric tools and ID scanning software to check if the IDs that employees and contractors submit are not forged. Fraudsters use a variety of ways to duplicate IDs and documents such as drivers’ licenses, but technology is catching up. For one, police are using a driver license scanner to verify a person’s identity or if such a person is using a fake license.
In the same way, investing in verification tools should help you prevent fraud long before it happens. It may seem like an added expense on your part, but it’s necessary for preventing serious losses that might happen under your nose.
4. Keep customers protected
It’s not enough to enhance your internal controls and come up with a fraud prevention policy. If you have an e-commerce platform that generates sales from digital purchases, it’s important to have the right tools in place.
Your customers are vulnerable to identity theft and account hijacking. Not doing your part in protecting your customers from these risks will only bring up an array of legal and ethical consequences. You will also be held liable under applicable local and international data privacy regulations such as the California Consumer Privacy Act and the EU-GDPR.
You play a significant role in helping your customers avoid fraud, so consider using two-factor authentication and enable data encryption by acquiring an SSL certificate. If you are accepting credit and debit card payments, make sure your payment system is PCI DSS compliant. Apart from that, you should also consider educating your customers on the need to observe data security and safety.
5. Consider internal fraud prevention training
Fraud can be prevented when everyone is made aware of such a risk. For this reason, you will need to train your employees and enforce best practices that will reduce the risk of data theft and other forms of fraud.
You will need to emphasize how your employees should treat security passcodes, corporate accounts, and other vulnerable assets. It matters a lot to set strict protocols that control how your employees use their security credentials, especially if they are working remotely.
Then again, it’s easy for anyone to forget these rules. So, make sure you conduct security and fraud prevention seminars at least twice a year. This should be enough to address new security threats and adopt new practices.
Fraud prevention is critical to the life and success of any organization. Knowing how easy it is for anyone to forge identities should be enough reason to follow the tips above.