Financial fraud is a risk any business could face at any time. Scott Regan, the Chief Operating Officer at RenewalMD, experienced this firsthand when their cosmetic surgery practice in Georgia was targeted. Somebody started using their routing and account numbers to issue fake checks, and the bank didn’t assist in recovering the money, leading them to close the account. This incident happened because they were relying on an outdated method for handling accounts payable, manually writing and sending checks. Now, Scott and his team have switched to advanced financial automation software to make digital transactions swiftly, conveniently, and securely. This story serves as a warning to businesses everywhere.
In 2023, the Association for Financial Professionals reported that 65% of organizations faced payment fraud attempts or attacks in 2022. The most common types included phishing scams, invoice fraud, payroll fraud, asset misappropriation, and internal fraud, which are becoming more sophisticated. For businesses looking to protect themselves, here are four actionable steps:
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Educate Your Team
Risks today can come from various channels like email, social media, or text, and scams evolve constantly. Keeping your team informed about common fraud tactics and how to avoid them is crucial. For instance, “CEO fraud” involves someone impersonating a high-level executive. This can happen to anyone and at any level. It’s vital to develop a security framework to guide employees in safeguarding the business, which might include explaining online security procedures, recognizing signs of fraud like unencrypted websites or misspelled domain names, and reducing human error when handling sensitive information. -
Strengthen Digital Security
Small businesses typically use an array of apps, so if one has weak security, it could enable fraud. To counter this, consider some basic protocols for maximum security. Investing in information security doesn’t necessarily require an in-house team, as consultants can be contracted to secure IT and data. Encourage employees to use passphrases—a chain of words that are memorable yet tough for scammers to guess, and keep software updated to minimize virus threats. Multi-Factor Authentication (MFA) is also vital as it requires more than one credential for access, adding an extra security layer against unauthorized transactions. -
Automate Finances
Reducing reliance on manual processes like paper checks by automating finances is essential to avoid fraud. A common scam is “check washing,” where fraudsters remove ink from checks to alter recipient details and amounts while retaining bank account information. Automating your payments with financial software helps detect unusual patterns and potential threats, and allows secure electronic transactions such as ACH, international, and virtual card payments. Integrated financial software doesn’t just make securing finances easier; it also helps with automating accounts receivable, managing expenditures, budgeting, and cash flow. This can boost business reputation and customer trust. -
Fortify Internal Controls
Strengthening internal controls is crucial for protecting sensitive financial data against both external and internal threats. Employee theft affects about 22% of small businesses, often involving financial statement theft. Recommended internal controls include using software to manage expenditures, regularly reviewing financial records, limiting access to financial information, and encouraging employees to report concerns. Effective internal control comes from using software to oversee corporate expenses, giving detailed insights, and allowing for better budget management and control over who can authorize spending. Such systems can catch irregularities early, providing essential checks against mistakes and fraud.
Winning Against Fraud
The story of RenewalMD demonstrates that businesses, regardless of size, can combat fraud effectively. While technology can’t shield against all threats, combining the right software with strong controls gives businesses the necessary tools and insights to protect against unforeseen fraud.
