Business Fraud Prevention Tips

Business Owners are faced with making financial decisions on a daily basis. Do I buy this? Do I extend credit to that customer? Do I hire this employee? These decisions, if not made wisely, could impact the Company at the end of the day if someone has the intent to deceive or deprive the Company of funds. Small & Medium-sized Business Owners cannot afford to lose money.

To this end every Owner or Manager of a Small or Medium-sized Business should have a due diligence process in place that prevents fraud and reduces the risk of income loss relating to the extension of credit and hiring of new employees. Debtors can leave you stuck with unpaid invoices that result in cash flow shortages and an unscrupulous employee can steal you blind.


•             Never extend credit to an Individual or a Company about whom/which you know nothing. Make enquiries, ask for references, and determine credit worthiness by obtaining a credit report on the Individual or the Company. A credit check identifies with whom you are dealing and determines the credit worthiness of the applicant.

•             Beware of phony invoices. Fraudulent Companies send out solicitations for advertising and/or products in the form of invoices to trick Businesses into paying without realizing that it is NOT an actual invoice and that they owe the sender nothing.

•             Make sure your staff do not provide information about office equipment over the telephone so that your Business doesn’t fall victim to the “Toner Phoner” scam in which fraudulent companies misrepresent themselves as your regular supplier to sell you over-priced office supplies.

•             Ensure that you have a Privacy Policy in place (a legal requirement as of January 2004) and that the personal information of your customers and employees is secure, which will help prevent Identity Theft. A shredder is mandatory for Businesses so that any personal information or corporate documentation is not thrown in the garbage where thieves can retrieve it and use it to your or your Client’s detriment.

•             Retailers, be aware of Individuals making credit card purchases for large ticket items where they appear to be in a hurry, don’t ask questions and cannot produce any photo I.D. with the name that is on the credit card. And in particular, BEWARE of the telephone order in which a credit card number is provided because despite the fact that you may obtain authorization from the credit card company; the fact that you don’t have the purchaser physically in front of you so that you can obtain a credit card imprint and compare the signature with the signature on the back of the credit card will result in the credit card company charging the item back to you if the credit card is subsequently reported as stolen or counterfeit.

•             Attention All Businesses: Do not deposit mail in a remote postal drop, especially cheques which have been written to pay an invoice. Cheques from these postal drops are being stolen with great regularity; they are altered to change the payee’s name and the amounts are usually increased. Although you will be reimbursed by the bank if you discover the theft within a reasonable time frame, this can be a major inconvenience that you do not need. Soalways drop your mail at an inside postal drop. Organized Crime, Drug Traffickers and every other Criminal Type are stealing mail from remote or portable mail boxes to commit fraud.

•             Always do a bank statement reconciliation at least once a month and preferably more often. If a cheque is stolen, lost or altered, you will be able to rectify the situation before it causes problems for the Company. You will also know if cheques have been written on the business account that shouldn’t have been and/or if the bank has made a mistake. There are many Individuals that have lost their Business because they were unaware of the accounting practices conducted by a “Trustworthy” Employee.

•             Know your Employees; are they using your Company vehicles and equipment to generate extra cash flow at the end of the work day? Do you have checks and balances in place to ensure that there is no internal theft of materials, money or time? Employee theft is a huge factor in the profitability of many Companies. Employee background checks are recommended for Individuals that you are going to trust with Company Assets.

•             Educate your Employees; have a Company policy where warranted so there is no doubt as to what is expected of them. Hold monthly meetings to discuss issues and problems and talk about the zero tolerance with respect to theft from the Company. If you as the Business owner want to prevent fraud and theft from your Company then you will have a due diligence process in place that reduces risk. Again, know who you are hiring; pre-employment checks should be mandatory.

Source: criminalfraud


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