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Dec 22, 201609:44 AMOpen Mic

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Is your business losing 5% annually to fraud?

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Experts on fraud estimate the typical organization loses 5% of its yearly revenues to various types of fraud. If 5% sounds high to you, then consider yourself fortunate — but never make the mistake of presuming your business is immune.

Many business owners fail to realize how devastating fraud can be, both in lost revenues and related fallout such as reputation, damage, and recovery costs. The estimate of 5% average yearly losses due to fraud comes from survey responses gathered in a 2016 report issued by the Association of Certified Fraud Examiners (AFCE).

Consider, too, this conclusion from the 2016 AFCE study: “Small organizations had a significantly lower implementation rate of anti-fraud controls than large organizations. This gap in fraud prevention and detection coverage leaves small organizations extremely susceptible to frauds that can cause significant damage to their limited resources.”

You can’t prevent fraud attempts, but you can reduce the risk. In this case “an ounce of prevention is worth a pound of cure,” because dealing with fraud after the fact is often fruitless. Even if the perpetrator is caught, you may never get your money back.

Smaller businesses may not be able to afford sophisticated fraud-detection systems, but the good news is that basic anti-fraud controls can significantly reduce their vulnerability. From our vantage point as bankers, here are some important ways you can protect your business.

Protecting against employee fraud

  • Implement “dual controls” for all payment methods and segregate employee duties.
  • Ensure employees log out of online banking sessions related to the business when not in use.
  • Never store sensitive information on portable devices.
  • Be sure that corporate controllers aren’t compensated based on the financial results of the business.

Protecting against check fraud — still the most common type of fraud

  • Purchase check stock from known vendors that include built-in security features.
  • Store checks, deposit slips, and statements securely.
  • Establish a policy for employee check orders and reorders.
  • Reconcile accounts daily using online banking.
  • Move to ACH (Automated Clearing House) for payroll, billing, and vendor payments.

Protecting against electronic payments fraud — avoid malware and phishing

  • Dedicate separate computers for internet browsing and online banking access.
  • On computers used for banking, block plugins and pop-ups.
  • Keep your software up to date.
  • Change employee passwords frequently.
  • Use Positive Pay (an electronic system for comparing cleared items with a file of known issues) and ACH debit filters and blocks to identify suspicious transactions.
  • And — same as in preventing check fraud — reconcile your accounts daily online.


Old to new | New to old
Dec 22, 2016 01:27 pm
 Posted by  Casey R.

These are excellent recommendations. Occupational Fraud (using one’s position within an organization to illicitly convert assets to their own) always involves deception. The most common utterance I hear from victims is “he/she was one of my best people!” Fraudsters come in all different shapes and sizes. We work, play and worship with them. The same trust and confidence we place in them enables them to commit fraudulent acts if adequate controls are not followed. I would also add to your list that a pre-employment background check be undertaken with every new hire.

Casey S. Reilly
Certified Fraud Examiner & Licensed Private Detective
Managing Partner of Fidelitec, LLC

Dec 27, 2016 09:52 am
 Posted by  Anonymous

Great article but it leaves out probably the most important strategy to avoid fraud -- have a tip line. Tips are consistently and by far the most common detection method. Over 40% of all fraud cases are detected by a tip — more than twice the rate of any other detection method. Employees accounted for nearly half of all tips that led to the discovery of fraud.

So the number one thing you can do? Implement an anonymous employee tip line. They are effective and affordable (even for small businesses) and just having one in place can often discourage fraud from ever taking place.

Lee Schwartz
SVA Certified Public Accountants, S.C.

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