Each year, more than 30% of businesses experience fraud. Due to advancing technology and progressive global development, this risk has only increased, and small businesses and startups are often the most vulnerable.
From undetected issues like embezzlement to asset misappropriation, these risks can leave your business exposed to further fraudulent practices—which could provoke IRS involvement and future revenue loss.
That’s because employing fraud mitigation strategies is crucial to reducing ongoing loss and fortifying your company’s assets. Using a multi-layered and protective solution can ensure your company is safeguarded from fraudulent attacks.
With that in mind, here’s what your business needs to know about fraud mitigation, and how implementing modern security measures can boost your efforts.
Determining Types of Business Fraud
Fraud can manifest in many different forms, but it can be broken down into three categories: asset misappropriation, financial statement fraud, and corruption.
Though least costly, asset misappropriation accounts for over 90% of reported business fraud. Whether it be stealing non-cash resources from the organization, taking cash before or after it’s been recorded, or making false expense reimbursement claims, these activities involve any form of stealing or exploiting company assets.
On the other hand, financial statement fraud accounts for less than five percent of business fraud, yet it’s considered to cause the greatest revenue loss. These schemes include eliminating or purposefully misreporting information in an organization’s financial reports.
Corruption schemes involve when one or more employee exert their influence over business transactions for personal gains, such as bribery, extortion, or conflicting interest. This particular practice makes up one-third of all fraudulent business activities.
Know Your Employees
So, how should your business go about preventing such fraudulent practices? The first step begins with getting to know your employees.
According to corporate security experts, up to 40% of business fraud is conducted by its own employees. However, further studies show that these employees often exhibit signs and traits that indicate fraudulent intentions—attitudes that should be easily detected by the company.
Carefully observing and monitoring your employees can help ensure your organization spots these behavioral trends before the crime is committed. For instance, if a worker feels a lack of appreciation from the company or is undervalued by the boss, this might lead him or her to commit some type of employee fraud.
Any behavioral change should cause you to pay closer attention to that employee, engage with them, and discuss any concerns they may have. Not only can this minimize potential loss from fraud, but also improve workplace efficiency and ensure your workers feel respected.
Implement Internal Controls to Spot Fraudulent Activity
In addition to monitoring your employees, implementing internal measures can help your company safeguard its resources and detect any traces leading to fraud or theft. For most businesses, this means separating duties and conducting accurate documentation.
Delegating too many duties to one employee can increase the chances of costly inaccuracies. No matter how large or small your business is, separating these tasks and responsibilities among your employee base can reduce the risk of fraud—whether it be intentional or unintentional.
Likewise, ensuring accurate documentation of physical documents like sales receipts, checks, purchase orders, and invoices—as well as digital e-payments through vCard and ACH—can act as your best internal defense against fraudulent activity.
Whatever internal program you decide to implement, be sure to monitor, review, and revise those strategies regularly.
Reduce Risk with BirchStreet Pay
Coming up with an employee fraud prevention program can be a challenge. With all the financial documents, digital payments, and employee risk to keep up with, it’s easy to make mistakes or pass over discrepancies.
Hiring a third-party service like BirchStreet can save your company time and money while reducing the chance of errors and headaches associated with these tasks. Using BirchStreet Pay, our expert technology offers multiple reliable payment options through ACH, check, and vCard—all of which are fortified with BirchStreet’s comprehensive and modern security features.
BirchStreet Pay also offers reporting and analytics, so you can gain greater visibility into your company’s payment habits, and ensure your business is taking the necessary steps to mitigate fraud.