The importance of fraud protection for merchants.

The importance of fraud protection for merchants.

Businesses are vulnerable to numerous perils. They can be negatively impacted by natural disasters, lawsuits, sudden revenue loss, theft, and so forth. One common danger that many entrepreneurs fail to predict or plan for is fraud. Protecting against fraud by taking it and its effects into consideration can minimize damage to your bottom line.

What is business fraud?

Business fraud occurs when an individual or an organization commits an illegal or dishonest act for their own financial gain. There are five types of fraud that could harm your company:

  • Identity theft. Criminals could steal your financial statements or tax information, thereby gaining access to your credit.
  • Payroll fraud. More common in smaller companies, this occurs when employees fail to pay back the advances they have requested or misrepresent their work hours. Approving all of your staff’s hours before they are paid via a payroll service can minimize this problem.
  • Counterfeit money. Although this might sound like a plot straight out of a movie, the truth is that large amounts of fake currency are in circulation today in the United States. It is in your best interests to learn how to identify it and to train your employees to do so as well. If you suspect that you have been handed a bad bill, contact your bank or your merchant services provider.
  • Returns. Unscrupulous customers often buy items, use them, and then bring or send them back for no legitimate reason. This is costly in many ways, not the least of which is that when the purchase was initially made with a credit card, the return results in a chargeback or involuntary refund. Although the occasional chargeback is inevitable and should be categorized as part of the cost of doing business, too many can result in problems with your merchant services provider, financial penalties, and even the closure of your account. The best ways to reduce product returns involve requiring that customers always supply receipts and making your return policy as transparent as possible. Partnering with a merchant services provider who offers chargeback mitigation tools would also be a wise move.
  • Workers’ compensation and personal injury. If you have employees, you are generally required by law to provide them with workers’ compensation coverage, a form of insurance that provides a safety net in the event of an injury or illness that occurred on the job. This coverage helps to pay for medical expenses and the loss of wages related to the incident or illness. Although most personal injuries and workers’ compensation cases are legitimate, fraudsters also exploit this vulnerability. A person might exaggerate the severity of an injury or incorrectly state that it occurred at work when it actually did not. Hypervigilance about workplace safety is one of your best weapons against this type of fraud. If a complaint is lodged, react immediately by speaking to your legal counsel so that your rights as a business owner are protected.

As you can see, fraud can spring from numerous sources and do a great deal of damage to your business. To protect against fraud, one of the most important things you can do is to have employees you trust.

Start off on the right foot in the fight against fraud.

A good employee is nothing less than gold. On the other hand, an unscrupulous worker can do infinite amounts of damage to your reputation and your bottom line. Taking time to bring on excellent workers is one of the best long-term investments that you can make in your company.

Heed the following tips for hiring your ultimate employee:

  • Conduct a background check. Many smaller businesses fail to take this precaution, much to their regret. Investing in this procedure can allow you to weed out people with a criminal past such as information systems security fraud, embezzlement, etc. that could have a direct effect on your finances.
  • Run a credit check. Especially if the job you are filling relates to finances, you want to be sure that the person you hire is fiscally responsible.
  • Check social media. Before offering the position, take a look at your potential hire’s social media pages, paying particular attention to any comments they have posted about previous employers. Keep in mind that this could be you someday.

Once the individual has accepted the job, it is important to provide them with comprehensive information about your company, including expectations of how workers must behave when representing your business.

Other ways to protect against fraud.

In addition to a conscientious hiring plan, there are other steps you can take in your regular business practices that can go a long way toward protecting your company. These include:

  • Delegating accounting duties to more than one person. Many small businesses make a single employee solely responsible for bookkeeping functions. This renders the company vulnerable should that person make errors or deliberately conduct fraud. Instead, assign these tasks to a team or hire an outside accounting firm if possible.
  • Implementing and maintaining internal controls that restrict permissions to sensitive information. Limit who can sign off on expense reimbursements, order inventory, write checks, and perform other payroll functions.
  • Conducting regular audits of your books. This should include inventory management, cash, refunds, returns, and other accounting functions.
  • Separate personal and business accounts. This shields your business from the errors and liability that can come with mixing funds together. Taking this step also makes it much easier to track business expenses and spot any irregularities that may have stemmed from fraud.
  • Act on your suspicions. If you have a gut feeling that something is not right, investigate it. By the same token, take action as soon as an employee has come to you with concerns about fraud. Failing to move forward quickly can be very costly in a situation where every minute counts.

Business fraud is more common than many people think and its effects can be profound. Safeguarding your company against takes a multi-pronged human and technological approach, requiring time and cooperation to initiate, implement, and maintain. If you do not have a robust protocol in place, begin taking steps to protect against fraud today.