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9 Ways to Protect Your Business From Financial Fraud

Like individuals, businesses can be at risk of experiencing financial fraud. This is especially true for small businesses, which may not have the resources that larger companies do to prevent and detect fraud.

That being said, financial fraud can affect organizations of all sizes and in different industries. This type of fraud is when someone illegally obtains your money or other financial assets by means of deception or criminal means. There are many different methods bad actors can use to take financial assets away from you and your business.

According to research, nearly half of U.S. organizations surveyed in the United States had encountered financial fraud. It costs businesses and the U.S. economy billions of dollars each year. Given the rise in financial fraud in the U.S., it makes sense for businesses to take the necessary steps to protect themselves.

Read on to find out the best ways and methods to protect your business from financial fraud.

Different Types of Financial Fraud

Before we look at the ways businesses can protect themselves from financial fraud, let’s understand what some of these different types are. This way, you can safeguard your business’s financial interests.


Embezzlement refers to the illegal use of one’s employer or trust funds for personal gain. An example of this is a bookkeeper or accountant creating fake invoices for goods not sold to customers and pocketing the money.

Return Fraud

This type of fraud is usually committed by customers. After having purchased an item from your business, a customer returns it to your company with the aim of getting money back. Some customers identify loopholes in the exchange/refund/return policy of a business and exploit them.

Financial Statement Fraud

Financial statement fraud involves someone deliberately overstating or understating balances on the business’s financial statements. This is usually done with the intention of misleading users of financial statements into believing that the company is in a better financial position than it really is.

Overstating revenue on the income statement and assets on the balance sheet to convince a lender (like a bank) that the company has a better financial performance and position than it really does in order to be approved for a business loan is a typical kind of financial statement fraud.

Business Identity Theft

Similar to identity theft faced by individuals, business identity theft is the practice of criminals defrauding or hurting a business by impersonating its legitimate owners (or employees). Criminals achieve this by using the business’s identifying information without authorization.

Business identity theft doesn’t just affect the company—it can have far-reaching effects on its employees and customers.

Apart from debts and bills, this type of identity theft can result in the business having damaged credit. It can also negatively affect an organization’s reputation as it can alter how business partners, customers, and lenders view your business.

Ways to Protect Your Business From Financial Fraud

Businesses can protect themselves from financial fraud by

1. Establishing and Maintaining a Fraud Risk Management Program

It’s crucial for businesses to conduct a fraud risk assessment as it will enable them to proactively detect threats of financial fraud. Thereafter, businesses can take steps to reduce the likelihood of these threats occurring.

2. Providing Employees With Cybersecurity Training

According to research, over 90% of data breaches are caused by human error. By making effective cybersecurity training available to your employees, you can help instill behaviors that protect your business against financial fraud. Examples of cybersecurity threats to make employees aware of include phishing, malware, and ransomware.

Criminals send employees phishing emails, pretending to be from a reputable company, with the aim of obtaining login details and/or other sensitive information. This information is then used to change banking details and have your business make payments to cyber criminals.

Having said that, it’s vital to ensure that cybersecurity training remains an ongoing program that evolves with the ever-changing threat landscape.

3. Conducting Background Checks on New Hires and Current Employees

Ensure your business’s HR function performs background checks on prospective and current employees. This way, you’ll be able to discover if a potential hire has a criminal background.

It’s important for businesses to hire employees that are trustworthy and who don’t engage in (or haven’t been convicted of) fraudulent behavior. This is because you want to safeguard your business from employing someone with a history of fraud (and who may commit fraud at your business too).

Also, a potential employee’s resume may have false information about their work history and references, so it’s important to do your due diligence in finding trustworthy employees.

4. Protecting Assets With Fraud Detection Techniques

Similar to the above, fraud detection techniques employed by forensic accountants can help to detect and prevent financial fraud in your business.

Forensic accounting professionals can also use computer forensic analysis to identify areas within your business’s internal control activities that are susceptible to financial fraud.

5. Developing an Effective Complaint Process to Resolve Disputes and/or Complaints of Financial Wrongdoing

Businesses and business leaders can create an environment where employees feel safe coming forward to report suspicions and/or findings of financial fraud.

Ways to achieve this involve providing avenues for whistleblowers, such as confidential tip-off lines.

6. Having a System of Checks and Balances When It Comes to Business Finances

This means preventing a single person from performing all roles within a financial transaction.

One example is the segregation of duties. This is where one person approves purchases and another is in charge of disbursements.

7. Protecting Confidential Paper Documents

Safely destroy paper copies of financial statements and other confidential documents by shredding them. Alternatively, find a secure place to file them away.

8. Regularly Reviewing Financial Statements and Records of Your Business

Complete monthly checks of your company’s finances. You can do this by comparing the total of all payments to that of all invoices, and comparing the total of sales and receipts in that monthly period. This may help you identify financial irregularities much faster.

If supporting documentation such as receipts and invoices is “missing,” it may be a sign that something is amiss.

It helps to conduct random audits or have a financial firm perform one on your financial statements to ensure they are presented fairly in accordance with U.S. GAAP. If it is found not to be the case, it may be due to error or financial fraud.

9. Getting Business Fraud Insurance

Business fraud insurance protects your business from financial harm inflicted on your corporation. It covers your business against theft, robbery, forgery, and fraudulent orders.

Since most business insurance policies don’t cover financial fraud, it’s best to get the insurance that protects your business from financial losses and business interruptions caused by financial fraud, whether it comes from inside or outside the company.

Final Thoughts

Financial fraud is a complex, unpleasant reality that businesses have to understand and prepare for. Not only can it negatively affect an organization’s finances, but it can also negatively impact the wider economy.

The above information aims to shed light on this growing phenomenon. Thankfully, by raising awareness in your organization, implementing the above measures, and taking necessary action, you may be able to limit your business’s exposure to financial fraud.

Disclaimer: The information in this article is provided for general education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. It is not intended to be and does not constitute financial, legal, tax or any other advice specific to you the user or anyone else. TurtleVerse does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.



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