Top 5 small business fraud threats
Small businesses are known for a lot of things – personal service, flexibility, and knowledgeable staff members, to name a few. Now they are also known for something a little less gratifying. Small businesses are the No. 1 target for fraudsters.
The Association of Certified Fraud Examiners (ACFE) claim that companies lose as much as 5 percent of their earnings every year, and small businesses are hit the hardest with an average loss of almost $155,000. Fraud is a serious problem for SMBs.
But before companies can protect themselves, we must have a thorough understanding of how criminals find weaknesses and exploit them. Different types of small business fraud call for different measures of protection, and it’s important to know criminals' methodology.
When employees commit fraud, it hurts the business on many levels. The financial losses can be significant, but these criminal acts also injure the trust between management and workers. Occupational fraud has many faces in the modern workplace – employees might steal by fabricating expense reports, lifting money from the cash register, or even recording customer payment card data using devices like skimmers.
There are three conditions that precipitate occupational fraud, referred to as the “fraud triangle” by the ACFE. First, the employee must feel real financial strain, often caused by a sudden change in their personal lives. Second, he or she must see a clear opportunity to steal. And third, the employee must be able to rationalize the decision to commit the crime. Watching for warning signs among your employees is a good way to stop insider fraud.
Data breaches are perhaps the most problematic of all small business fraud threats because of their technical nature. Cybercriminals are skilled hackers who know how to find weak links within your payment processing system and use them to snatch customer data. Requiring all staff to change their passwords once a quarter, along with using one dedicated machine for banking purposes (no Internet browsing, email or social media usage), can help keep attacks out of your system. You should also encrypt all of your business and customer data.
Attacks on consumer networks
Due to budget limitations, small business owners sometimes invest in poor quality networks that are really meant for consumers. Some of them may not even use routers, instead plugging their machines straight into an internet connection. This can be a huge mistake, as cybercriminals will have little difficulty tapping into your system. If you can’t afford a business-grade network, at least make sure you invest in a quality router and change the password. That will help you block some, if not most, attacks until you can invest in better protections.
Stealing your business identity
Most people think of individuals when it comes to identity theft, but businesses are often victimized as well. Identity theft occurs when sensitive information is obtained, either through paper or electronic means, and false accounts are opened in your company’s name. One best practice is to examine your bank statements and report any suspicious charges. You should also properly dispose of pre-approved offers you receive from credit card companies.
Opening credit accounts
Many businesses are vigilant about the risk of embezzlement and review their checking accounts on a regular basis, but many forget about the possibility of someone opening a fraudulent credit account in the business name.
By knowing the risks and taking some precautionary measures, small businesses can reduce the risk of fraud without breaking the bank. Watch for vulnerabilities both inside and outside your shop, and invest in a good security solution as soon as you can because protecting your business against fraud helps ensure the future of your business.