Integrated Security Services, Inc., New York

Fraud Risk Assessments: No Longer Just a Tool for the Big Guys

28 Jul

Fraud alert sign geralt/Pixabay

Fraud is incredibly common in businesses of all sizes. It’s therefore crucial — no matter who you are — to evaluate your level of risk.

There is a simple business idiom that goes, “You don’t know what you don’t know.” This unassuming yet surprisingly profound idea is essentially that it is difficult to address a problem and improve upon your business when you aren’t actually aware that the problem exists.

The answer to this age-old dilemma is constant vigilance. A good manager must make a habit of thinking outside the box and delving into the unknown in order to avoid getting blindsided by unexpected problems.

One of the most common and devastating of these lurking issues is fraud. According to the Association of Certified Fraud Examiners (ACFE), the threat is ubiquitous, continually rising, and affects all levels of business. The ACFE’s annual report indicated that the typical business actually loses about 5% of annual profits to fraud, whether they know it or not.

This fact is disconcerting  and can lead to some serious paranoia across management  but the reality is that it is just another everyday fact of business. Your best weapon, as in most cases, is education.

Understanding the common ways in which fraud takes place, and how you might end up vulnerable to those scenarios, is critical when it comes to protecting your business.

Close to Home

The ACFE report also revealed that by far the biggest threat of fraud comes from within your own organization. And with the help of Entrepreneur, we’ll delineate some of the most common ways your own employees might be getting the best of you.

Indeed, the most typical kind of fraud is asset misappropriation, accounting for about 85% of all cases. This can happen in several ways, but most simply, your employees will be paid for work they never completed.

And if your payroll books are not routinely and thoroughly reviewed, you might never even know it’s happening; your wayward employee may see tens of thousands in illicit gains, but the percentage increase of just a few points on your payroll sheet can easily go unnoticed.

Another thing to look out for from a disgruntled employee: masking illegal personal bonuses by writing slippery “double checks” to vendors.

As detailed in the unsettling example provided by Entrepreneur, a bookkeeper writes a check to a vendor while simultaneously writing him or herself a small, personal check that is “officially” labeled as sent to the same vendor (but instead goes straight to her bank account)  the total amount is slightly too high, but largely unnoticeable.

Unless a business owner thinks to scrutinize the balance sheet, this type of fraud is very difficult to catch.

The list goes on: ordering more office supplies than necessary and then recouping a personal refund upon returning a small portion; appropriating funds due for company payroll taxes; any small loophole an employee can manage to slip through unnoticed.

The ACFE report was unequivocal about one thing: fraud affects virtually every business, no matter the size or type, but is especially devastating to smaller businesses that have trouble quickly recouping lost revenues.

Safety First

Though it is impossible to “know every unknown” as a business owner, that is exactly your job. Any revenue lost to fraud not only weakens the company, but also destabilizes the integrity of your core group. However, in an era when costs have to be cut  leaving gaps in internal control systems  it is increasingly difficult to keep tabs on employees that may unexpectedly turn to desperate measures.

Most often, the best solution is to reach out to someone with a specialized kind of knowing. Professionals versed in risk analysis and mitigation are intimately familiar with problems that, at the surface, might not be immediately obvious to you.

The seasoned team at Integrated Security Services offers a way to discreetly and effectively gather a comprehensive understanding of where you’re at risk for fraud  and where it may be currently ongoing.

Business is fraught with uncertainty, but the tools are out there to help navigate your path with confidence. You just need to reach out and grab them.