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How to Avoid Falling Victim to Business Financial Fraud - 5 Helpful Tips

When the average person hears the word fraud, they automatically think about things such as wire fraud or identity theft which happens to individuals. Business fraud is something that few people actually consider, but it's essential to understand that you are not immune as a business owner! In fact, since your company deals with a wide range of customers, employees, and vendors daily, you are left with more ways to be defrauded. Today we'll discuss how to avoid falling victim to business fraud with 5 helpful tips.

Educate Yourself

The first step to avoiding falling victim to business financial fraud is to educate yourself on the different forms of business fraud. For some, it comes in the form of chargebacks, and for other companies, it's buyer-identity fraud, merchant-identity fraud, or merchant-credit risk. Such attacks can even come from fraudsters who are masquerading as legitimate sellers and buyers.

One such example is known as collusion fraud, and it's common on platforms for crowdfunding. Essentially, a fraudster uses a fake campaign and fake identity to create a merchant account and then creates fake customers who donate to the merchant's campaign using stolen credit cards. The fraudster attempts to pull the funds before the cardholder has a chance to discover and dispute the charges.

So, knowing the types of fraud that can occur in your industry and business is the key to avoiding them.

Secure Your Technology

Technology is not only used to defraud a business but it's also used to protect from these occurrences. Knowing what methods your company should be using is vital. The most basic steps are to ensure each computer is protected with antivirus, firewall, spyware, and malware detection software.

Another great step is implementing a password policy that requires all employees to change their passwords every month or so. Finally, when using technology to avoid falling victim to business financial fraud, be sure to maintain data policies and make sure your company's critical data is backed up routinely.

Implement Other Protections

To prevent business financial fraud, you can also leverage tools such as Lexis-Nexis, Equifax, and Experian to validate user-provided data. Such services are excellent for verifying a client's business and credit history, thereby also assessing the person's legitimacy.

Secure All Contracts

If you operate a business that utilizes contracts, then you need to be sure each arrangement is solid. Vendor or contractor fraud can occur when a company's subcontractors, vendors, or independent contractors skimp on goods and services delivered, over-charge, or simply bill for work that was not completed.

To avoid falling victim to scams such as these, you should always research vendors and ensure every contract is fortified. This is best handled through a business attorney, but some states also have safeguards in place that you can use. For example, Florida offers construction lien laws to help prevent vendors from being passed over on payment. Basically, a vendor can file a Notice to Owner (NTO) on any job totaling over $2,500. So, if a customer refuses to pay with an NTO in place, the vendor can place a lien on the property.

Also, be sure to carefully review all purchase orders and invoices to make sure they are correct and legitimate.

Create and Enforce Policies

The final step that's imperative to avoid falling victim to business financial fraud is to create policies and consistently enforce them. When you do this, your company is better equipped to track company finances and assets. For example, buyers and customers commonly defraud businesses by writing bad checks, using stolen credit cards and counterfeit money, trying to refund products they didn't purchase, and by shoplifting. Hence, every employee needs to be trained on how to spot these practices. Also, your company should have policies for dealing with such matters and for inventory control to better track your company's products and supplies.

The bottom line is that no business wants to fall victim to business financial fraud. So, the best thing you can do is educate yourself and put every safeguard in place that's available for your type of business.



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