The number one best solution to fraud prevention for small businesses is an anonymous tip hotline. A recent study conducted by the American Institute of Certified Public Accountants (AICPA) showed that 59 percent of forensic accountants believe internal whistle-blower hotlines are the most useful investment a business of any size can make to deter fraud.

What is a tip hotline?

A hotline is a safe place that people can call to report violations about your company practices or employees. The Association of Certified Fraud Examiners (ACFE) recommends EthicsLine for confidential reporting 24 hours a day, year-round. Other companies such as Fraud Hotline offer yearly packages for small businesses and non-profit organizations for $500 or less.

Why is a tip hotline important?

Since the Sarbanes-Oxley Act of 2002, public companies must implement fraud reporting to be compliant with federal regulatory requirements to receive and track complaints. Private companies are utilizing them as well as an inexpensive and effective method for preventing fraud.

Not only does a tip line show fairness in an organization, it can help a company defend against lawsuits. Implementations of tip lines have been shown to diminish the time of existing fraud schemes by 50 percent or more. According to a 2012 ACFE study, almost half the tips come from employees, but another 17.8 percent come from customers. Vendors and anonymous callers make up the next largest reporting segment with 25 percent of the reporting between the two of them.

What should you look for in a tip line?

Shopping around and finding the best fit for your business is key. There are many questions to ask:

-Does the organization need multilingual services?
-Does the tip line need to be 24/7/365, or can it match business hours.
-Will there be toll-free operators, or message systems?
-Can input be accepted by email or fax?
-Is there case management, and resolution of each report?
-Is there a location where someone can speak to a live person?
-Will there be anonymity? (Studies show lack of anonymity affects peoples’ willingness to report.)

Although tip lines that include in-person services and case management cost significantly more than web or cloud-based options, they’ve been shown to strengthen a company’s legal standing in the event of a lawsuit.

Every organization decides what sort of tip line works best for them. However, even if the company chooses to start small, having any tip line is better than having none at all.

Contact us for more information on preventing fraud.

Finding the right payment processor for your small business can be challenging. There are a lot of great options on the market, but not every option is a good fit for every type of small business. Here are some tips for how to begin the process of finding the right payment processor for your small business:

- Research the company’s history: You want to choose a payment processor provider who has a proven track record. Find out how long the provider has been in service and how many customers they currently have. Check with the Better Business Bureau for their evaluation. Ask other business owners for their opinions on providers. Getting a feel for which companies are proven to be good providers is a good way to start narrowing down your field of options. There’s no need to waste your time (or money) on a new provider or one who has proven to have a history of unhappy customers.

- Customer service and support: Once you’ve started narrowing your options, look at the providers’ customer service and support options. Do they have a toll free number that’s available 24/7, or are they only available during normal business hours? Can you call them on a weekend? What kind of training do they offer? Will they provide you with a hard copy of your billing transactions or just a digital copy? What is their client satisfaction rating? You want to make sure the provider will be there to help you and keep you and your customers satisfied long after you’ve signed on to an agreement with them.

- Fees: Now it’s time to talk money. Keep in mind that the least expensive option isn’t always the best option. Get a list of all the possible fees and associated rates for each provider you’re considering. Pay particular attention to any provider who has suspiciously lower rates than its competitors, as this often signals that there are hidden fees elsewhere in the contract. Remember that payment processing is never free. If a provider tells you it’s free, they’re hiding that payment somewhere else by building it in to another service term or fee.

- Timing: Knowing when deposits will be made into your account is crucial and can be the determining factor in which provider you choose. Usually the time between your transaction and the deposit into your account is around 72 hours. Some providers, however, can take up to 2 weeks to make deposits, which can be a big hit on your small business.

- Security: Another important factor for your small business is how the provider handles security and fraud. Is the provider PCI compliant? Are fraud detection services included in the pricing or is there an extra charge for this service? Know what the process is if, and when, fraud is detected and whether or not you’ll be charged if it happens.

Finding the right payment processor for your small business will take in a lot of factors. Start by narrowing down the field to legitimate providers who have a good reputation, then compare their fees and other features to determine which one is right for you and your business. For more information on how to choose the right payment processor, contact us.

When fraud is improperly managed, it’s not only money and assets that are lost. Companies also lose intellectual property and people when trust in the company culture is lost. To be able to survive and thrive, fraud prevention is essential for all small businesses.

Preventing fraud in the workplace is not as simple as separating the accounts receivable and the accounts payable position. Management and administrators must also know who is most likely to commit fraud, and how the fraud can be detected.

Who is likely to commit fraud?

According to the Association of Certified Fraud Examiners (ACFE), males are twice as likely as females to commit fraud. Also, their average “take” is twice as high. Single perpetrators are twice as prevalent as groups when it comes to defrauding – 64 percent of all frauds are committed by one person. The losses from these individuals are staggering, nearly five times the amount of multiple perpetrators.

The largest losses are likely to come from the top, rather than the bottom of the organizational chart with owners and executives stealing far more than low-level employees. Long-term employees are much more likely to steal than the new people.

Much of this has to do with trust. Employers are more likely to place their trust in those individuals with a long tenure and a large amount of responsibility. For this reason, measures should be in place so that stealing is more difficult – these measures are called internal controls.

What are people most likely to steal?

The four types of assets most commonly stolen are: cash, inventory, information and securities. Although cash is the most common type of theft at 88 percent, securities fraud has an average loss of $1.85 million.

When it comes to fraud, “cash” is rarely in the form of greenbacks. Fraudulent disbursements are where almost 72 percent of theft occurs. Practices like “skimming” are when an employee accepts payment from a customer but does not record a sale. There is also “cash larceny” which is where an employee steals cash and checks from daily receipts before they can be deposited.

How to prevent small business fraud?

  1. A good set of internal controls is vital. Examples: Reconciling bank statements each month, splitting the financial processes over several people, and protecting cash and checks against unauthorized use.
  2. Implementing an anonymous tip line where fraud can be safely reported without fear of repercussion. This should coincide with company training about fraud and ethical behavior.
  3. Implementing a mandatory vacation policy. If an employee, particularly one in the financial departments, refuses to take a vacation, it can be because they cannot afford to have anyone look too closely at their activities.
  4. Open communication and perceptive hiring. If an employee begins to live above his or her means, fraud should be considered.

Please contact us for more information on fraud prevention in your business.

Small businesses don’t have many of the luxuries that large corporations enjoy. One errant transaction, for example, will affect a small business much more than it would a corporation. That’s why small businesses have to practice fraud prevention at all times.

A general rule of thumb would be that if anything seems too good to be true, than it probably is. But fraud prevention goes much deeper than this. Sometimes, businesses have to look out for seemingly normal transactions.

There are characteristics of suspicious transactions that all business owners should be aware of. On top of this, they should pass this knowledge on to employees so the entire company will be aware.

A recent Business 2 Community article talks about fraud prevention and describes some telltale signs of suspicious transactions. According to the article, businesses should always look closely at a buyer’s billing address:

“Be wary of unusually large orders placed online without any contact from the customer, or rush orders for large quantities or for expensive goods, warns Janet Attard, author of The Home Office and Small Business Answer Book. Other red flags: orders shipped to a different address than the billing address; orders from foreign countries; and billing addresses that don’t match the information on file with the credit card company.”

If a buyer actually lives at his or her recorded billing address, it would be relatively easy for businesses to respond to any foul play. But if the billing address is a fake, then businesses have no real way of tracking down the buyer.

We wish that we didn’t have to warn business owners about fraud, but that’s the reality we face today. You can’t just take a transaction for what it is. If you want to actually receive money, you have to have a system in place to prevent fraud.

To talk more about fraud prevention, or anything else, please contact us.

Are you taking the necessary steps to protect your business from fraud? According to the Association of Certified Fraud Examiners (ACFE), companies with less than 100 employees lose approximately $155,000 as a result of fraud each year. Small businesses also have a higher fraud rate than larger companies and non-business owners. The following are a few simple tips to help with fraud prevention for small businesses.

Educate Your Staff. Employees are perhaps your biggest point of vulnerability when it comes to fraud, but they are also your first line of defense. Hold regular training sessions on basic security threats (online and off) and prevention measures – both for new hires and seasoned staff. Also, train employees on the proper use and handling of company confidential information, including financial data, personnel and customer information.

Background Checks. Basic pre-employment background checks are a good business practice for any employer, especially for those employees who will be handling cash, high-value merchandise, or have access to sensitive customer or financial data.

Fake Invoices. Fraudulent companies have been known to 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.

Mobile Fraud. According to a study conducted by LexisNexis and Javelin Strategy & Research, small businesses that accept mobile payments are exposing themselves to risk by using too-few fraud-prevention systems. Some strategies for preventing mobile fraud include the following:

  • Thoroughly authenticate transactions through mobile devices.
  • Maintain open communications with financial institutions and other mobile merchants to better understand the evolving nature of fraud threats and solutions.
  • Track fraudulent activities by each channel you offer.

Hotlines. A fraud hotline is the simplest, cheapest, and most effective way to detect fraud based on studies of how fraud is detected. Employee tips result in the detection of fraud more than any other method. Phone or web-based hotlines are common tools for fraud reporting and there are several third-party providers that offer these services. When employees have a confidential means of reporting issues, you are more likely to receive helpful tips that can stop fraud in its tracks.

You may want to consider purchasing an insurance policy that protects you against any losses that you may incur from crime or fraud. However, careful attention and verification can prevent businesses from falling victim to fraudulent activities. Keep the above tips in mind to help prevent your business from falling victim to fraud.

For more information on fraud prevention for your small business, please contact us.

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