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Business fraud and how to prevent it

Business fraud is simply the intent or the act of misrepresentation – scammers lying about themselves or their actions and services – to cause a gain or loss.

With limited resources and in tough economic conditions, small and medium-sized enterprises (SMEs) tend to think more about innovation, growth and survival rather than due diligence, internet controls and risk management. These can often seem expensive, hard work and involve a lot of paperwork.

But this approach leaves SMEs particularly vulnerable to fraud, with many owners and managers unaware of the risks their businesses face.

It’s important to recognise that a fraud can come from anywhere, including:

  • staff members

  • customers

  • suppliers

  • third parties, unconnected to the business

From the start, fraud can seem complicated and difficult to understand, as criminals use a variety of tools and techniques. We can’t provide a single solution to prevent all business fraud, but the information below will help you identify the most common types and take action to protect yourself, your staff and your business.

Ten tips to prevent business fraud

Remember these ten simple tips to reduce the risk of business fraud and keep your business and staff safe. 1. Be sceptical If it sounds too good to be true, it probably is. Thoroughly question all:

  • deals

  • opportunities

  • documents

  • transactions

  • information

2. Know your business inside out Have a thorough understanding of your business so you know:

  • how it operates

  • the staff you employ

  • the products and services it provides

  • your target market and your business

  • your legal and regulatory obligations

This will help you realise immediately when something isn’t right.

3. Know your customers and suppliers

When you understand who you do business with you can spot any business request or transaction that looks wrong for that customer or supplier and may be fraudulent.

Conduct due diligence using a risk-based approach, such as checking the customer or supplier details you have on file, as well as online searches.

4. Identify areas where your business is vulnerable to fraud Imagine how a fraudster might target your business, both internally and externally, and test the systems you already use to reduce risk. Make sure you and your staff know those systems and regularly review them.

5. Develop a strategy and talk about fraud Think about the right fraud prevention and detection strategy for your business: it should detail controls and procedures. Staff look to owners and managers for guidance to acceptable behaviour. Talk about fraud with your staff, suppliers and other contacts. Your staff need to understand the risks and how losses affect the business and themselves.

6. Take extra care against cyber attacks With increasing threats from cybercrime, protect your business technology against attacks. Make sure you back up your systems in case they go wrong.

7. Understand your finances Understand how money leaves your business, including:

  • methods of payment

  • who has authority to make those payments

  • who checks payments are legitimate

Always check your bank statements.

8. Secure and protect your property This includes laptops, computers, smartphones and intellectual property. Factor in business insurance to cover these items if they’re compromised or stolen. Use and maintain inventories.

9. Develop an action plan Consider when you might need professional or legal advice. While prevention is better than cure, it’s important for you and your business to be prepared for the worst. Having an action plan in place will help limit your losses to fraud.

10. Always report fraud and get help Action Fraud is the UK’s national fraud and cybercrime reporting centre. You can also get information about fraud and financially motivated internet crime.

You can also report fraud to the police if you know the suspect or they’re still in the area. Call 101 to speak to one of our operators.

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