Business Fraud

Odds are your firm is losing money because of fraud. Whether perpetrated through supply chain schemes, identity theft, insider activity, or other means, fraud is prevalent and you need to fight back.

Research shows why businesses need to devote more attention to fraud prevention. Companies who participated in latest Annual Global Fraud Survey from the Association of Certified Fraud Examiners estimated they lost 5% of their revenues annually to fraud.1 The survey, year after year, found that nearly 80% of fraud involved employees.

The median losses uncovered in companies with less than 100 employees is comparable to those for companies with more than 10,000 employees; however, the financial repercussions are often greater for smaller organizations.

Common fraud schemes

The large amount of fraud and risk incidents reported reflect criminals getting smarter in their deceptions. Five common fraud schemes involve people taking advantage of their access or internal vulnerabilities:2

  1. Financial frauds can involve employees abusing their authority to embezzle or move funds elsewhere. Other financial frauds take forms as fake orders, duplicate payments, inflated expense reports or work hours, and personnel inflating sales to get more commission.
  2. Supply chain schemes may involve fake purchase orders, deliveries that go missing or “fall off the truck,” or an employee creating and paying a false supplier.
  3. Employees have undisclosed interests in a supplier, receive kickbacks, or accept cash or gifts for using the vendor’s services.
  4. Account takeovers where employees access customer or company accounts and make unauthorized withdrawals.
  5. Identity theft situations with contracts signed by the fraudster or where customer or employee information is stolen and used.

What you can do about it

Reducing your firm’s risk of fraud and embezzlement involves incorporating steps for prevention, minimizing losses, and detection. Here are some best practices:3,4

  • Set up internal checks and balances by establishing separation of duties and dual controls on financial transactions. This means not investing too much trust in any one person.
  • Reconcile accounts (and inventories) regularly to find any errors or odd entries. Ideally, the reconciliation should not be done by the person who pays the bills (checks and balances!). Also, make year-over-year comparisons to find anomalies.
  • Take advantage of electronic banking and bill pay systems, particularly systems that suspend payment when incoming checks do not match issued checks.
  • Establish a way for employees to confidentially report fraudsters. Insider tips are a top means for companies to find out about frauds.
  • Do not depend solely on internal human oversight. Overworked, multitasking employees have other priorities and lack the expertise to identify many anomalies. Consider hiring an outside agency to provide your firm with impartial oversight and manage your full credit-risk cycle.

Don’t wait until you identify a problem to take action and protect your assets. The odds, unfortunately, are that some fraud exists. Consider the flexibility of working with a regional firm that knows the area you serve and your field of business.

Contact the experts at Mountain States Commercial Credit Management to help you manage your fraud risk and monitor your accounts. Call us at 800-457-8244 or send a request through our website to learn more about ways we can help.

1 Association of Certified Fraud Examiners. 2017. “2016 Global Fraud Study: Report to the Nations on Occupational Fraud and Abuse.” Source.

2 Hardwick, Ron. 2007. “Supply Chain Fraud in the 21st Century, Knowledge Insight.” CIPS. Source.

3 Leuchtner, Tom. 2011. “4 Internal Frauds and How to Spot Them.” Banking Exchange.  Source.

4 Kolly, Dwayne. 2014. “Preventing Losses from Fraud, Forgery, and Embezzlement.” Business Bank of Texas. Source.