The thought of fraudulent activity alone is enough to fill any business owner with dread. On average, fraud affects 1 in 4 businesses every year and can have a devastating effect on your business operations, and in extreme cases lead to companies having to stop trading altogether due to the costly implications that fraud can have. In early 2018, corporate solicitors dealt with more cases that ever before with UK fraud hitting a 15 year high reaching a value of £2 billion.
Whilst there are many types of business fraud, the few that small business owners are to be most aware of due to their potential severe impact are as follows:
Identity theft is when fraudsters steal the business identity via information such as financial statements, tax ID numbers, bank statements etc. and use it to access business credit.
To try and combat identity theft, business owners must ensure that any sensitive documents and bank statements are kept locked in a filing cabinet that only they have access to. Online copies of sensitive documents should be password protected with a password and username that is not obvious. It may be a good idea to regularly change passwords too. Also, try to avoid being caught out by phishing scams via telephone or email and always check with your bank or any other provider if you are unsure whether or not an email is from them.
A lot of small businesses are subject to return fraud, in one way or another. This is when customers either purchase a product, use it and then return it claiming it hasn’t been used, shoplifting and then picking the same item off the shelf and trying to return it for full price or simply claiming they haven’t received their online order or that they sent a return and it has been lost.
Whilst it is difficult to completely eradicate return fraud, there are methods in which small business owners can try to reduce it. Operate an in-store receipt returns only or for online orders send deliveries via tracked mail or kindly request that the customer retains a proof of delivery from the post office when they are returning an item. If the problem persists, business owners may want to consider only offering store credit after a certain time period.
Although all business owners like to think that their employees are trustworthy individuals, sometimes that isn’t always the case. Payroll fraud is when employees attempt to cheat the payroll system by getting more money than they are entitled to from the company. There are many methods in which this can be done: Employees may log longers hours than what they have actually worked or they may get a colleague to sign in for them when they aren’t actually in the workplace. An employee could also request and advance payment but fail to pay back the money to the company or if they claim expenses, they may submit false expense claims for a sum which is higher than their actual expenses.
It is important to do background checks on and get references for employees before you hire them to determine their character and whether or not they are likely to commit such an act. Although carrying out employee checks could help, unfortunately it isn’t a fool proof way to stop payroll fraud altogether. A simple way to combat payroll fraud is to assign different payroll duties to different people so that the responsibility doesn’t fall with one employee. By splitting up payroll duties, a clear line of accountability is established with a clear audit trail, making it easier for any anomalies to be raised. Ensure that proof of expenses is produced before reimbursing the employee. If you have employees that work shifts, invest in a sophisticated clocking in and out system which requires a unique identifying element for each employee, for example, many modern day businesses have invested in fingerprint technology.
If your small business falls victim to business fraud it is important to contact a commercial litigation solicitor to professionally and quickly solve the matter and reduce the potential detrimental impact on the business.