Fraud is a growing concern for businesses around the world. According to the Association of Certified Fraud Examiners (ACFE), businesses lose an estimated 5% of their annual revenues to fraud. This percentage may seem small, but it can add up to millions of dollars lost for businesses of all sizes. Fortunately, you can help protect your business from the financial impacts of fraud by better understanding the types of fraud out there and taking preventative measures to keep your company safe.
The cost of fraud
Fraud can take many forms, including embezzlement, false invoicing, and asset misappropriation. Regardless of the type, the financial impact of fraud can be devastating for businesses. According to the ACFE, the median loss for businesses due to fraud is $125,000. For small and medium-sized businesses, this loss can be catastrophic. In addition to the financial loss, businesses may also suffer damage to their reputation, lose their customers”™ trust, and pay legal fees and/or regulatory fines.
Preventing fraud
Preventing fraud should be a top priority for businesses. Here are some steps you can take to help prevent fraud:
- Create a Code of Conduct: A code of conduct establishes ethical and behavioral expectations for employees. This code should include guidelines for reporting suspected fraud, conflicts of interest, and other unethical behavior. Businesses should ensure that employees receive training on the code of conduct and understand their responsibilities.
- Implement Internal Controls: Internal controls are policies and procedures that help prevent fraud. These controls can include segregation of duties, dual signatures, and regular audits. Businesses should regularly review and update their internal controls to ensure they are effective.
- Conduct Background Checks: Before hiring new employees, businesses should conduct thorough background checks. This can help identify any red flags, such as previous criminal activity, that may indicate a higher risk for fraud.
- Monitor Financial Transactions: Monitoring financial transactions can help identify potential fraud. Businesses should review bank statements, credit card statements, and other financial records regularly to ensure all transactions are legitimate.
- Encourage Whistleblowing: Encouraging whistleblowing, when an employee reports suspicious or unethical behavior, can help businesses identify and address fraud quickly. Businesses should create a safe and confidential reporting system for employees to report suspected fraud, so they can do so without fear of retaliation.
- Conduct Fraud Risk Assessments: A fraud risk assessment is a process of identifying potential areas of fraud risk and developing strategies to mitigate those risks. Businesses should conduct regular fraud risk assessments to identify new or evolving risks and adjust their fraud prevention strategies accordingly.
Fraud can have a significant financial impact on businesses of all sizes. However, businesses can take steps to prevent fraud by creating a code of conduct, implementing internal controls, conducting background checks, monitoring financial transactions, encouraging whistleblowing, and conducting fraud risk assessments. By taking these steps, businesses can better protect themselves from fraud and the resulting financial losses.
If you need help implementing fraud protection strategies at your company, Valley can help. Visit Valley.com or contact us to learn more.
John Madrigal is the National Head of Treasury Solutions at Valley Bank. You can learn more about Valley’s Treasury Solutions at Valley.com.
For informational/educational purposes only. The information in this content is not advice on legal, tax, investment, accounting, regulatory, technology or other matters. You should always consult your own financial, legal, tax, accounting or similar advisors before making any financial or investment decisions, or entering into any agreement for Valley products or services. Copyright © 2023 Valley National Bank, All Rights Reserved.
