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How Businesses Can Avoid Fraud 

Business Fraud - Image from pixabay by methodshop

Since the beginning of the financial services industry, unethical organizations have discovered ways to take advantage of vulnerabilities for their benefit. Although business fraud is nothing new, internet thieves are becoming more skilled at exploiting security measures as the financial system grows more decentralized.

Business Fraud Types

Despite its numerous variations, asset misappropriation, corruption, and financial statement fraud are the main categories into which business fraud can be divided.

1. Financial Fraud

Less than 5% of cases involved financial statement fraud; however, these cases had the highest median loss in 2021. These deceptive tactics exclude or purposefully misrepresent data in the company's financial reports. This occurs due to unreported liabilities or exaggerated assets.

Fintech companies have increased during the past ten years, producing technology that speeds up, streamlines, and decentralizes financial processes. With the help of these developments, we can now carry out previously impossible acts, such as sending money instantly across the globe or obtaining small personal loans outside of regular business hours.

These technical developments have made it possible for businesses to automate procedures that up until now called for a time-consuming paper-based credit check, such as the approval of a loan or cash transfer. This has allowed companies to lower administrative expenses, boost productivity, and lessen their reliance on critical financial institutions to serve as intermediaries. Still, it has also exposed them to greater financial risk.

According to studies, fraud happens in fintech companies like neobanks at a rate about twice that of credit card companies. Financial crimes like fraud, extortion, and blackmail are on the rise, and between 2020 and 2021, South Australia Police reported a 29% increase in these crimes.

2. Asset Misappropriation

Asset misappropriation is the least expensive type of fraud, yet it accounts for 90% of all cases. These strategies include an employee stealing from or abusing the company's resources. Stealing money before or after it has been recorded, inflating receipts for expenses, and seizing the company's non-cash assets are a few examples of asset misappropriation.

3. Corruption

In every business, less than one-third of cases involve corruption. Corruption schemes can place when employees go against their obligations to the employer and utilize their influence to their advantage in business dealings. Bribery, extortion, and conflicts of interest are a few manifestations of corruption.

How To Guard Your Company Against Business Fraud

Recent advances have undoubtedly aided firms in increasing productivity and achieving growth. However, you don't have to give up on those advantages to protect your funds thoroughly. You must be intelligent about which activities you automate and use the best solutions.

Conduct Due Diligence

It's crucial to do your research before accepting a new customer. Starting with a credit check before extending credit is the most excellent method to safeguard your company. But not every credit check is created equal. For instance, CreditorWatch's credit check procedures combine and analyze data from numerous sources to generate insightful analyses and forecasts on every Australian company.

Advance Screening With KYC And AML

Features expressly intended to assist businesses in identifying and preventing financial crimes are available. With the help of our Know Your Customer (KYC) and Anti-Money Laundering (AML) tools, anyone may perform thorough partner screening.

Politically exposed persons (PEP) and sanction checks are included in the AML report to look for corruption or bribery activity. They also contain adverse media checks to uncover negative news or coverage related to the organization and document verification services (DVS) to prevent fraud. These measures aid in safeguarding your company from criminal activities such as bribery, tax evasion, money laundering, theft, and other financial crimes.

At Moxeconsulting, you can get unique services on political Exposure Checks within a few days. We guarantee 99% positive results, which will be helpful to your organization.

Business Fraud - Image from pixabay by mohammed_hassan
Business Fraud - Image from pixabay by mohammed_hassan

Understand Your Employees

Fraudsters frequently exhibit behavioral characteristics that indicate a desire to commit employee fraud. Employee listening and observation can aid in spotting potential business fraud risks. Managers must interact with and spend time getting to know their staff. Frequently, a shift in attitude might alert you to risk. This may also highlight internal problems that must be resolved. An employee might engage in employee fraud as a form of retaliation if, for instance, they feel underappreciated by the company owner or are upset with their manager. You should pay special attention to that employee if their attitude changes at all.

In addition to reducing fraud losses, this could improve the workplace environment and make staff members happier. Other hints may be discovered by listening to staff. Unfortunately, business fraud happens frequently, and the employee you least expect commits the crime. Getting to know your staff members and dialoguing with them is crucial.

Put Internal Controls In Place.

Internal controls are the strategies and tactics used by your business to protect its resources, guarantee the accuracy of its financial records, and prevent and identify fraud and theft. Internal control measures like the segregation of roles are crucial in lowering the risk of fraud. For instance, one cashier, salesperson, and manager work in a retail establishment. One employee should total the cash and check register receipts, another creates the deposit slip, and a third deliver the money to the bank. Any differences in the collections may be made clear by this.

Another internal check that helps lessen business fraud is documentation. As an illustration, if the preparation of the bank deposit and the sales receipts are recorded in the books, the business owner can check the paperwork daily or weekly to confirm that the tickets were placed in the bank. Additionally, ensure that all checks, purchase orders, and invoices are numbered.

Recognize Your Business Associates.

Ensure you understand the fundamentals before entering a commercial connection with another company or person that calls for a certain degree of trust, such as sending them an invoice after receiving a good or service. Other contact information, references, and knowledge of their physical address are all effective fraud deterrents.

A quick web search of a company should reveal enough details to determine whether and how long they have been in operation. The Better Business Bureau and the commerce department of your municipal, state, or provincial government are other sites that can offer background information.

Employ Reliable Experts

Numerous employees of your business, such as Certified Fraud Examiners (CFE), Certified Public Accountants (CPA), and CPAs with a Certification in Fraud Forensics (CFF), can all play significant roles in developing antifraud policies and procedures. But not all of these professionals have the expertise or the standing to offer the service most suitable for your requirements.

It is essential to ensure the firms have a reputation for providing high-quality service and reliability. Don't just give them access to sensitive company information like bank account details. By doing this, you can be sure that your internal control audits, forensic analyses, and essential financial consulting services are thorough and that your information is always protected.

Fraud Detection Strategies

You should have detection mechanisms in place in addition to prevention strategies, and you should make sure that the staff is aware of them. The Association of Certified Fraud Examiners (ACFE) report Managing the Business Risk of Fraud: A Practical Guide claims that one of the most significant ways to prevent fraud is to make these controls visible. To ensure your fraud detection tactics are successful, reviewing and improving them regularly is crucial. 

Plans for detection typically take place throughout the regular business day. These strategies link internal data with the consideration of external information. Your fraud detection plans' outcomes should improve your preventive measures. Your fraud detection tactics should be documented, along with the people or groups in charge of each task.

All staff should be informed of the plan and the implementation process once the final fraud detection strategy has been developed. The act of telling the team of this is preventive in and of itself. Employees' attempts to commit fraud may be thwarted if they know their employer keeps an eye on them and will discipline them.


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