When you read the word “fraud,” certain images come to mind: big businesses, financial firms, sketchy shell companies, pyramid schemes, slick hucksters taking advantage of a nonprofit— you get the idea. All of this seems very far removed from what you do as a small business leader.
If your business deals directly with customers (like in retail or ecommerce), you might jump straight to something closer to theft, customers who try to buy from you using fraudulent methods or means.
In reality, fraud affects more businesses more frequently than we tend to assume, including small businesses like yours. That’s because it takes forms most people don’t expect and catches small to midsize businesses unprepared.
Small Businesses, Big Target
It’s tempting to assume that fraudsters will only go after the biggest targets and the most lucrative paydays (like those big businesses and financial companies), not after smaller and “less interesting” businesses like yours.
But this is a mistake! Fraudsters of all types love to target smaller businesses because they’re easier marks. They don’t have as much protection in place, employees often aren’t as well trained, and they don’t have an army of lawyers at their disposal ready to go after any bad guy who gets caught.
So the payday may be smaller. But the risk of ending up in jail is much lower, and the difficulty of committing fraud usually is as well.
Top Ways Fraud Could Be Costing You
Fraud comes in many forms, and it’s tough to stay focused on every angle. These are some of the top ways that fraud could be costing your business.
1. Employee fraud
No one wants to think of their employees as a threat, but unfortunately employee theft and fraud are commonplace. Unscrupulous employees may find a way to skim cash or improperly allocate budget line items. They could misclassify inventory as broken or damaged and then take it home or sell it on the cheap to a friend. Unfortunately the possibilities here are nearly endless, and often it’s small businesses who lack the controls and systems to prevent or identify this kind of fraud.
2. Identify fraud
We usually think of identity theft as a personal problem, something that affects individuals. After all, in most cases your business isn’t on the hook if a scammer uses John Smith’s credit card to buy your products.
But look closer and the problem becomes clearer: what happens when John Smith isn’t a customer, but a trusted member of your team or a valuable client? Now the identity thief could do direct damage that does leave you on the hook. They might convince you or someone on your staff to send them money, ship out products, or even provide data or access credentials to a sensitive system.
In the business world, this type of fraud often starts with something called business email compromise, or BEC. If you’re the founder or CEO, imagine someone manages to gain access to your email account (something that can happen through phishing scams and spear-phishing attacks). Suddenly the “CEO” requests that an employee send a company payment or shipment somewhere slightly unusual. The employee complies — who’s going to say no to “you”, after all?
These kinds of payments or shipments can be next to impossible to claw back.
Solutions
Better digital security can help, including things like biometric logins, MFA, and even AI-driven fraud detection tools. Requiring strong passwords and training your team to understand and identify fraud help, too.
Some of these are difficult to deploy properly without skilled assistance. If you could use help or would benefit from a review of your security and fraud-prevention strategies, reach out to our team anytime.