Essential Fraud Prevention Strategies for Entrepreneurs and Small Businesses

Fraud poses a threat to companies of all sizes, with small businesses, particularly new ventures, facing unique risks due to limited resources for robust prevention programs. The good news is that there are straightforward yet powerful strategies that can significantly reduce the risk of fraud, irrespective of the size or age of your company.

Understanding the Risk

Fraud can manifest through various channels, involving employees (occupational fraud) or external entities like vendors, customers, and cybercriminals. In some cases, collusion between internal and external parties exacerbates the threat. Occupational fraud typically falls into three major categories: asset misappropriation, corruption (e.g., bribery), or financial statement fraud. While these threats might seem daunting, they all share a common objective: to steal your company's cash or assets. Recognizing and acknowledging this risk is the first step toward fortifying your defenses.

Eight Simple Ideas to Safeguard Your Business

Internal controls stand as the primary defense against fraud. If controls are lacking, if owners and managers can override them, or if there's a general laxity in employee oversight, the business becomes more susceptible to fraud. Here are eight practical tips for entrepreneurs, especially those new to business, to combat fraud effectively:

1. Separate Business and Personal Accounts: 

• Open distinct business bank and credit card accounts to facilitate efficient monitoring and reporting of financial performance, aiding in the quick detection of unusual transactions.

2. Utilize Anti-Fraud Tools: 

• Explore the anti-fraud tools offered by most banks to small business customers. Consult your bank to understand the benefits and drawbacks of each tool.

3. Regular Reconciliation of Financial Accounts: 

• Allocate time monthly to review all bank and credit card transactions. Promptly notify your bank or card issuer if any transaction appears incorrect or unauthorized.

4. Verify Calls, Emails and Texts: 

• Stay vigilant against phishing scams targeting business owners and employees. Verify the legitimacy of calls or messages from seemingly official entities before clicking on links or providing sensitive information.

5. Educate Employees: 

• Employees are your first line of defense. Provide training on potential fraud schemes and the reporting process for suspicious activities.

6. Maintain a Visible Presence: 

• Keep a close eye on employees, especially those handling cash or involved in financial processes. Don't shy away from asking questions and investigating any suspicions.

7. Invest in Internal Controls: 

• Develop and enforce policies governing inventory, shipping, sales, payroll, and other vulnerable functions. Having controls is essential, but consistent enforcement is equally critical.

8. Implement a Cyber Defense Program:

• Protect your business data with anti-virus and anti-malware software. Ensure that all devices, including mobile phones, have the latest software installed and promptly update when new versions are available.

Building an Effective Fraud Prevention Program

Contrary to common belief, a fraud prevention program doesn't have to be costly or time-consuming. We specialize in identifying your business's unique threats and recommending simple, cost-effective controls to keep fraud at bay. Let us help you safeguard your business's integrity and financial well-being.

How HoganTaylor Can Help

If you have any questions about this content, or if you would like more information about HoganTaylor’s Forensic, Valuation & Litigation Support practice, please contact Clay Glasgow, CPA, ABV, CFF, CFE , Advisory Partner. 

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.