Posted By: Erick Caceres
Financial Crimes that Target Small Businesses
The Vulnerability of the Small Business
Much like the everyday worker, small businesses are not immune to financial crimes nor fraud. Now, more than ever, it is evident that our institutions are vulnerable to fraudsters. In part I Financial Crimes during Unprecedented Times, we discussed how even our own government agencies are unable to prevent cybercrimes. This is especially concerning with their significant investment in cybersecurity products. Businesses have to take initiate in improving their protections against financial crimes, which can come in the form of cyber-attacks. As our technology becomes more sophisticated so does the type of crime. Small business owners in particular need to be aware of the type of crimes that they ca be subjected to endure. Knowing the types of crimes and how to prevent them can decrease the risks of financial loss.
Small Businesses and Technology Risks
According to a 2018 report by the Association of Certified Fraud examiners, “organizations worldwide lose an estimated 5 percent of their annual revenues to fraud”. Fraud takes many shapes and forms, among them corporate fraud, consumer fraud, tax fraud, identity theft and many others. What many small businesses don’t realize is that a single instance of fraud can be devastating: the median loss per fraud case was $145,000, and more than a fifth of the cases involved losses of at least $1 million. Now more than ever it’s important it to safeguard business bank accounts, business credit cards and debit cards. It is also equally important to protect your intellectual and operational property, such as trademarks, patents, business plans, and other financial data.
The importance of technology and how it continues to evolve is critical for small businesses to keep up with. Business owners need to realize how technology is especially at high risk of being hacked or used for fraudulent means. Experts note that there are two main types of cyber attacks:
This just goes to show that businesses must be aware of the risks they face and where they are coming from.
Types of Financial Fraud against Business
Brad Egeland from Business Know-How, talks about the two primary types of crimes that businesses are facing in today’s world. Egeland notes the differences between “theft” and “digital vandalism”,. Theft can include the loss of important personal data including, monetary and commercial data, client information, and business plans. On the other hand, digital vandalism can include attacks through technology including cyber-attacks. These attacks can come in the form of viruses, malware and hacking. Businesses can incur significant losses if these categories are not identified and mitigated.
The consequences of having been a victim of fraud can be significant. Businesses lose more than monetary possessions; they can lose their entire identity and reputation. Furthermore, business leaders might not be able to attract future clients if they are not able to show resistance against fraud. Why would someone continue to do business with a bank that has not shown commitment to reducing fraud risks? Brad Egeland tells us that more than losing financial information, companies are at risk of losing their ability to mitigate future attacks. It is very expensive to invest in lucrative cyber products. Every time a company fails to stop a cyber-attack, they stand to lose a lot of money. This can potentially harm the company in the long run when it comes to investing in future counter-measures. This is why it is important for businesses to be ready to address the problems within their own protection systems.
Protection is a choice, but an important choice.
When it comes to countering the risks of cyber-attacks and financial fraud, businesses need to invest in the future; however, what is most important is to be able to address the issue quickly. Experts note that that the best way for companies to adapt to the ever evolving world is to change with it. Indeed, the best prepared businesses will be able to respond to attacks fast. This can only be achieved through advance management, technology investment and stable preparedness. Business leaders have to make sure that their companies will be able to reduce the likelihood of fraud and/or attacks, but if they cannot, they must be able to address the issues quickly.
At the end of the day, we are all vulnerable to financial loss through fraud. We need to take the initiative for ourselves or our businesses. The sophistication of the crime is evolving along technology.
The responsibility lies with us. COVID-19 has pushed many companies to move more of their their work online. Technology is the primary tool of the employee and they are vulnerable to cyberattacks if their systems are not protected; however, protecting our systems and our workers need to be top priorities to our companies. We also need to think about how our businesses will look like after the pandemic. What have we learned so far when it comes to mitigating cyber and fraud threats? How did our work environments react to COVID-19 and its push for remote work? These are all important things to consider if we want to improve our protections against fraudsters.
Methods against Fraud
There are many methods that can help businesses avoid being victims of financial crimes. The California Society of Certified Public Accountants (CalCPA) is one of the biggest accountant associations in the United States. The CalCPA recommends businesses to look at all of the areas within their companies for possible risks. For technology in particular, business owners have to update their databases, invest in anti-virus protections and protect their passwords. Beyond technology, CalCPA has also identified other ways that business owners can follow in order to avoid losses including:
· Companies should hire only people who have a clean background. This means businesses should make sure that their potential workers and their experience are accurately reviewed.
· When it comes to the accounting functions, the companies should make sure more than one person is in charge. Having one person be in charge of the entire accounting area can increase the likelihood of fraud.
· Bank statements should always be reviewed carefully. Checks in particular need to be recorded and revised by the owners.
· Auditing can be an extensive process, but it can help businesses lower risks of financial crimes within the company. Unexpected auditing can help owners discover potential fraud.
· Having a work culture of openness and respect can help the company and its employees. As discussed previously, many businesses have training programs and sessions that help employees identify fraud.
· Small business owners shouldn’t rule out all other crimes. Indeed, crimes come in many forms including identity theft, trade secrets and data theft. Companies should be aware of the risks related to these crimes.
· Finally, owners should try to communicate with CPAs in order to discuss more specific methods of protecting themselves against financial crimes.
The week of November 15-21 is National Fraud Awareness Week. Here are several resources you and your company can take to avoid being a victim of fraud: Fraud Awareness Resources
Please share if you have a tip to share about lessening the possibility of being a victim of fraud in a small business.
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