Fraud can be detrimental to a business and its operations. Whether you run a small company or a large corporation, business fraud can cause significant financial loss and reputational damage — as well as impact overall profitability. Fraud can also lower employee morale, damage investor confidence, and harm relationships with customers. Importantly, there are a number of ways business owners can mitigate the risk of fraud and protect their assets.
Here are ten key steps Long Island businesses can take to avoid business fraud:
1. Provide Employee Training and Education
One of the most important things a business owner can do to prevent fraud is provide employees with the training they need regarding the common types of fraud and how to recognize red flags. It’s crucial to promote a culture of transparency and establish the procedures for reporting. Ongoing education should be provided to keep employees informed about new types of fraud schemes and any policy changes.
2. Segregate Duties
Implementing a system of checks and balances by segregating duties is vital to avoid business fraud, error, and abuse. This ensures that no single employee has complete control over a process. Different people should be assigned to handle the various aspects of a transaction, from authorization to invoicing, and maintaining files. Effectively, the segregation of duties can reduce the opportunity for someone to commit fraud and conceal it.
3. Conduct Regular Audits
By conducting regular audits, you can identify any vulnerabilities in your internal controls, evaluate risks, and detect red flags that may indicate fraud. In addition, since potential fraudsters know they are being monitored when audits are performed on a regular basis, they can serve as a deterrent.
4. Perform Thorough Background Checks
Background checks should be performed on all prospective employees and business partners. They can help prevent business fraud by confirming an individual’s identity and credentials — and ensuring they are trustworthy. A thorough background check can verify prior employment, uncover previous instances of criminal activity, and reduce the risk you are bringing someone on board with a history of dishonest behavior.
5. Implement Strong Cybersecurity Measures
Strong cybersecurity measures can protect your company’s digital network, limit the availability of information on computer systems, and prevent potential fraudsters from having unauthorized access. Implementing firewalls, multi-factor authentication, transaction monitoring systems, and encryption are just a few ways to safeguard your company’s sensitive data from being stolen to perpetrate fraud.
6. Limit System Access
By limiting system access in your business, you restrict who can access certain data in your company. This ensures only those who are authorized have permission to access the information they need to carry out their job functions. Different levels of access can be assigned based on employee roles and prevent unnecessary exposure to confidential data.
7. Reconcile Financial Accounts Regularly
Regularly reconciling financial accounts can help detect fraudulent activity. This should be done by an individual who does not have bookkeeping or check signing responsibilities. Each transaction should be compared and reviewed for accuracy. Any discrepancies or unusual patterns should be investigated.
8. Screen Vendors Carefully
Not all business fraud is internal — some types of fraud are committed externally by vendors and suppliers. It’s critical to conduct due diligence on any third parties with whom you will be doing business by verifying licenses, checking references, and reviewing financial records.
9. Stay Informed About New Threats
Keep up to date with new fraud trends and threats that could impact your business. Attend conferences, read industry publications, and subscribe to news sources to stay informed. Having knowledge of the latest tactics fraudsters are using can ensure you can inform your team about what to look out for — and develop a plan to safeguard your company.
10. Create a Fraud Response Plan
Regardless of how many measures you have in place to mitigate the risk of business fraud, it can still occur. It’s crucial to develop a comprehensive response plan that includes the steps that should be taken if there is an issue. The plan should include a process for reporting suspected fraud, the procedures for investigating any instances of fraud, and the corrective measures that should be implemented.
Contact an Experienced Long Island Business Fraud Attorney
If you’re a Long Island business owner, it’s essential to have a knowledgeable attorney by your side who can assist you with any business fraud issues you might face. At Barnes & Barnes, P.C., we are proficient in handling a wide range of business matters, including those involving fraud. Contact us at (516) 673-0674 to schedule a consultation.
