Bank of Blue Valley
Fraud: What You Need to Know to Protect Your Business

Business fraud is increasing at an alarming rate, and it’s critical businesses take active measures to protect themselves from becoming the next target.

FRAUD: WHAT YOU NEED TO KNOW TO PROTECT YOUR BUSINESS

Now more than ever, your business might be more susceptible to fraud as you operate much differently, and in many cases, have employees working from home. This is already the age of digital technology, and those capabilities are now at the forefront of how many companies are conducting their business virtually. However, maintaining your Accounts Receivable and Payable processes from home may be difficult and potentially exposing your business to fraud. Coming in various forms and degrees of severity, there are many ways scammers can quickly cause damage to a business.

Recent reports show these attacks are strikingly common:

Fraud Statistics

Sadly, fraudsters come in many forms. For businesses, the most common types of fraud include:

Internal:
Commonly called Occupational Fraud, this generally comes from within a company when an employee commits fraud by utilizing his or her role for personal gain. While among the most preventable types of fraud, it is often the most prevalent. It is essential that companies implement preventative measures to monitor and recognize malicious internal activity, and/or deter employees from defrauding your company.

External:
This type of fraud generally involves a vendor colluding with someone inside the business. From check or vendor fraud, to fraud perpetuated by identity theft, these external threats can cause major losses for businesses. Fraud protection services can, and should, be utilized to protect your business from external threats.

Online:
With as much digital activity we engage in today, hackers can compromise business email addresses, computers and more. Due to our ever-changing business landscape, online fraud continues to grow as scammers impersonate your vendors, members of your team and many others with information they obtain via an internet search.

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Best Practices to Help Fight Fraud:

  1. Review your internal controls and ensure strong procedures are in place
    Strong internal controls are the greatest fraud deterrent. Reviewing your procedures and ensuring checks and balances are in place with dual payment controls reduces the likelihood of fraud. A few examples include:
    • Setting payment limits by account and/or employee
    • Separation between an individual that pays the invoice and the individual who approves an invoice
    • Establishing payment limits based on payment history
    • Daily reconciliation of activity to identify suspicious payments, leading to a better process of stopping or recovering fraudulent payments
  2. Educate and train your employees to identify fraudulent activities
    Educating your employees will deter both internal and external fraud threats. It is essential that your top level management, and more importantly, your Accounts Payables (AP) and Accounts Receivables (AR) departments know what to look for. Preventative measures include:
    • Establishing a policy for handling AR that trains people to spot bad checks or stolen credit cards, while assuring payments are being received.
    • Verify requests from vendors directly via an established phone number or email address. Do not reply to an email request for funds that seems to come from a vendor or someone on your leadership team.
    • Create a system and/or source for employees to report suspected fraud, such as a hotline. When it comes to the initial detection of fraud, employee tips are the most common2 method at 40%.
  3. Implement a validation process
    Part of educating and training your employees is implementing a validation process. It will ensure payments are not made based on a phone call or email communication. While validating a large new payment or new vendor might take time, the savings benefits of stopping fraudulent payments are much greater. Key items to consider include:
    • Establish a point of contact with the vendor, and if suspicious issues arise, only contact this individual by phone with the established phone number on file. Ensure employees don’t use a number from the potentially fraudulent email or phone message, as the fraudsters might have provided a false number.
    • Do not provide information to an incoming caller that is inconsistent with the relationship. It is a best practice to hang up and call the established contact number to validate the transaction.

Implementing these best practices, combined with Treasury Management services and Payment Solutions such as Check and ACH Positive Pay, Alerts, Commercial Card, Integrated Payables, and more, can help mitigate risk and your company.

Sources:
1Association for Financial Professionals: 2020 Payments Fraud and Control Survey Report.
2Association for Certified Fraud Examiners: Report to the Nation’s 2018 Global Study on Occupational Fraud and Abuse.