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Fraud Awareness: How Small Businesses Need to Stay Vigilant to Avoid Fraud

By Todd Clark, Small Business Banking President, EVP, Old National Bank

Fraud is always a hot topic, but with a potential economic downturn, we will likely see increased reports of fraud attempts, and small businesses provide easier targets for the criminal minded.

According to a report from PwC, 46% of companies surveyed reported experiencing fraud, corruption, and economic crime in 2022. Small businesses are especially hit hard by fraud as they often don’t have the resources and teams to help avoid it.

Another report from the Association of Certified Fraud Examiners (ACFE) found that companies lose roughly 5% of their revenue to fraud each year. Preventing fraud can make a real impact on your bottom line. Here are a few tips for small businesses to help avoid losses from fraud.

Be careful with cash

In uncertain economic times, robbery risk increases and cash-heavy businesses are bigger targets. Businesses such as restaurants, bars and retail stores are especially susceptible to robbery.

One of the biggest ways to avoid robbery risk is to reduce the amount of cash on-hand by accepting cards for payment. In a post-COVID world, some businesses have moved to electronic payment only and have decreased their cash losses.

Keeping your cash secure is also critical to minimizing your losses. Secure the cash on premises by using smart-safe solutions and armored couriers. Counting cash, preparing deposits and taking trips to the bank are time-consuming activities that put your employees at risk. Smart-safe solutions reduce risk to you and your team and also saves time by not having to transport excess cash.

Keep an eye on your accounts

This one seems obvious but monitoring your accounts and knowing the patterns can help you detect fraud quickly before it gets out of control. I recommend reconciling daily. This will help you spot any suspicious charges and transactions.

Make use of electronic payment options

According to a 2021 survey by the Association for Financial Professionals (AFP), 60% of organizations reported check fraud incidents. If possible, reduce check payments and make electronic payments as often as possible using tools like ACH and wire transfers. I also recommend making use of Positive Pay for checks and incoming ACH entries. Positive Pay validates incoming checks against your submitted check issue file by looking at account number, check number and amount. It allows you to review items and return them if they are unauthorized.

Use dual controls and segregate responsibilities

It’s important to have solid procedures in place to avoid fraud. Whenever possible, have two individuals involved when sending payments – one to create payments and one to approve them. You could also have one to manage payee masters and one who can send payments to on-file payees. Having dual controls in place means that if one of your employees is hacked, a fraudster would be blocked from having full control and completing the payment as it would need two employees.

Verify changes to payment instructions by phone

Social engineering is one of the most common types of fraud committed against small businesses. This involves manipulating someone into giving information and completing a fraudulent task.

One of the common social engineering schemes we see is through payment requests. If you receive a request to change on-file payment instructions, call the person making the request at a known phone number before updating their payment information. Never call a phone number included with the request because it may also be fraudulent.

Stay vigilant

As the saying goes, prevention is the best medicine. Fraud is costly for small businesses and can quickly get out of hand if not caught early. You don’t need a ton of resources to help you and your company avoid fraud.

Keeping an eye on your accounts, having solid procedures such as dual control, and making use of tools such as Positive Pay can help you prevent fraud. I should also mention that training your employees to spot red flags and teaching them best practices will go a long way in stopping fraudsters gaining access to sensitive information. Making fraud prevention a priority will help keep you and your company safe. 

To learn more about avoiding fraud click here.

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