7 Ways to Protect Your Small Business From Fraud
It’s an unfortunate fact of life, but the hard work you put into building up a successful business makes you a target for scammers and criminals who want to see some of that money flow in their direction… only without having to put in the time, develop the expertise, or serve the same customers.
Fraud, in its various forms, costs North American companies billions every year. The exact figures are hard to calculate, as many small rip-offs are never discovered or reported.
There probably isn’t any way to completely protect your business from fraud, but there are steps you can take to minimize the likelihood that you’ll lose money on the most common types of schemes. To help you stay safe, and keep your own money where it belongs, here are seven things you can do to make yourself a more difficult target for thieves and scammers:
#1: Use Dedicated Accounts for Your Business
If you have a very small company or one that’s just starting up, you might be tempted to co-mingle personal and business funds. That’s a bad idea since it makes things like expenses and invoices harder to track, and it means you could overlook fraudulent transactions because you mistake them for personal purchases. But there are more reasons to have your accounts dedicated:
- Ease of tracking business transactions
- Efficient tax returns
- Leaves a clear audit trail
- Accurate cash flow management
- Establishes business credibility & professionalism
- Builds your business credit score
- In some countries, this is required by law
- Sometimes you get for free a business account from a local bank, so why not using it?
#2: Review Transactions and Reports Regularly
The easiest way to stop fraud is simply to keep a close eye on your books. When you know what your balances are like, and how much money is coming in and out of your business, it’s easier to spot issues (like unusually high amounts of returns, cash register discrepancies, vendor chargebacks, etc.) that can signal fraudulent activity.
Your bank or credit union will have several anti-theft and security measures in place to protect your accounts and money. These measures usually check your accounts for suspicious or unusual purchase behaviour. It is important, however, to be proactive protecting your personal information and accounts, particularly if you transact regularly.
#3: Be Smart With Passwords and Personal Details
Although many business owners don’t realize it, keeping common passwords (and especially those that correspond to everyday words and phrases) can be cracked by automated software programs in a matter of seconds. On the other hand, passwords containing complex characters and mixed strings can take months for thieves to break, which is more than enough time to catch them in the act. Be sure to set strong passwords for all your accounts, and then keep them to yourself.
How to make a strong password for your bank account
- Don't be silly and stay away from an obvious combination of words and symbols, like sequences of symbols, letters or numbers. Definitely avoid using a password as your password. Avoid personal birth dates, names, or very popular, pets. Some examples to definitely avoid include 123456, 123456789, qwerty, 1111111, password, abc123, password1, password! 123123.
- Make it long, preferably over 15 characters long if possible.
- Use a mix of characters, numbers and symbols, uppercase and lowercase.
- Avoid common substitution, like n00b instead of a noob, or D00R8377 instead of DOORBELL.
- Don't use keyboard paths, especially ones commonly used, like 159357 or poiuyt.
- Don't use a single word.
- Use password-memorizing software like LastPass.
#4: Give Employees Separate (and Restricted) Access
In a lot of small businesses, employees have access to the same financial software that the owner or bookkeeper does. Usually, that’s because they need to process small transactions (like cash register sales) and only one platform or login is being used. That’s not a good idea, since it invites problems that are easy to fix. Either upgrade your accounting package to something more secure or (better yet) set different levels of permission for your employees than you keep for yourself.
#5: Always Check the Details
Acts of fraud are often committed by those we assume we can trust – employees, vendors, and even fake inspectors. The best way to steer clear of these is to always check details and credentials. Don’t take someone else’s word for it that they are who they say they are, that what they’re doing is normal and necessary, or that you have to pay an amount shown on a statement or invoice. If there is any question, make a phone call, conduct a background check, or ask to see an extra piece of identification.
#6: Get Good Insurance
Yes, we know this article is about preventing fraud, but when something already happens, it's good to be ready for the worst-case scenario. For something that will minimize the damages. Good insurance comes in many forms. There’s the kind you pay for the monthly premiums, of course, which can help protect you against many types of theft, robbery, and financial fraud. Having good technology with the right vendors is another form of insurance, however, and a kind that’s just as invaluable. Look around to see what you can do, or who you can hire — that will help protect you against unexpected losses.
#7: Trust the Right People
Most bookkeepers and accountants are trained to spot the signs of fraud and theft, even if it’s coming from within your own business. It makes sense to work with one, even if it’s just for a bit of oversight. Just be sure you check their credentials before you hire them and start turning over the details of your business finances.
You’ve worked too hard to build up your business to watch your profits disappear because of fraud. Start following these seven steps today, and see what they can do for your business.
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