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Tips to Protect Your Small Business From Fraud and Scams

Most companies, big and small, are aware of fraud and scams. Whether the scams are in person or online, they can come with serious consequences. Both businesses and lives can be significantly affected by fraud and scams. These crimes are committed every day and businesses need to be prepared for these attacks. There are some simple steps businesses can take to prevent losses from these crimes.

Before you can defend against these attacks, you have to understand what they are. According to Black’s Law Dictionary, fraud is defined as “knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment." Fraud must be intentional; the person committing fraud is aware they are not being factual and honest.

There are 2 general types of fraud that break down into more specific types. The 2 general types, according to The Balance, are:
 - Fraud of commission, in which someone states a fact that they know is not true. For example, they state "That car has never been in an accident,” while knowing that it has been.
 - Fraud of omission, in which someone conceals an important fact. For example, someone knowing that a car has been in an accident and not disclosing it. 
Internal Fraud

Internal Fraud
Internal fraud is when someone from within the company commits a crime of fraud. This can include stealing supplies, selling inside secrets, and a wide variety of other things. Internal fraud accounts for 76% of all fraud incidents in the US, according to a 2009 PriceWaterhouseCoopers survey. Of that 76%, 42% of fraud was committed by middle managers. This trend makes sense because employees know the inner workings of a business, making it easier to find weak spots to exploit.

Elena N. Lougovskaia, co-founder of Lougovskaia Boop, LLC a business focused on law and commercial litigation, says “Employees wear many different hats, and perhaps decision makers should be separated from people who sign the checks or one person should be responsible for signing checks and a separate person should be responsible for accounting, processing invoices, and purchasing.” Granted, this is not always possible. However, that doesn’t mean it isn’t something you can strive for down the line.

Customer Fraud
Customer fraud is when a non-employee defrauds a business. This can include shoplifting, using stolen credit cards, or returning an item they didn’t purchase. A common scam for a criminal to run with a stolen credit card involves them buying large items online form a big box store and then selecting in-store pick up. From there, they hire a courier service to pick it up and give it to the thief. This leaves the courier and the box store on the hook for the stolen products.

A more secure way to have larger items delivered is by using secure transportation services which partner with retailers to be their designated shipping method. Some of these services will even arrange in-home delivery so the customer has as few obstacles as possible.

Another good way to tell that a sale might be fraudulent is if the price is too good to be true. Sales do occur, but an extremely low price is an indicator that the sale might not legitimate. Be cautious when delivering packages at storage units or empty warehouses, as these are common locations for people running scams to set up shop.

Be cautious of customers suddenly changing their contact information, as this could be a sign that a criminal is trying to hide. Confirm contact details with the customer to ensure they are correct before shipping a package to them. If a phone number is out of service, try contacting the customer another way before shipping.

Unfortunately, fraud and scams will always be around. However, by being vigilant and careful, you can protect your business. Start by monitoring your employees, tracking inventory, confirming customer contact information, and using secure shipping services. With these practices, your business will be as safe as it can be against criminal attacks.

Meet The Author:


Nick Rojas

Nick Rojas

Nick Andrew Rojas is a business consultant turned journalist who loves working with small and medium-sized companies. He has contributed to many publications such as Entrepreneur, TechCrunch, and Yahoo. In his spare time, he hangs out at the beach with his dog Presto.
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