Insurance 13 April 2017

Which sectors are most vulnerable to small business fraud?

Protecting against fraud

While some sectors may be behind on the awareness curve regarding new types of fraud, there is a growing realisation that fraud could pose the biggest threat to their business.

In fact, research found that fraud could become more of a threat to small businesses than staff leaving, or losing a significant client.

Despite the back-drop of recent shock fraud stories in the media (such as the healthcare product company whose financial controller was persuaded by a fraudster to transfer £18.5m to global accounts), firms are not changing or introducing new business processes fast enough to detect and prevent fraud.

Some 40 per cent of SMEs say that they haven’t changed their accounting processes, with less than half of the motor trade sector and professional, scientific/technical companies admitting to making no improvements to detection systems.

Five achievable steps to improving fraud-detection processes

(1) Be vigilant

Make preventing business fraud everyone’s concern, not just the accounting team’s.  Train client-handling or account-facing teams, and especially those with responsibility for supplier relationships, about the risks and the implications and how to identify the signs.

(2) Authenticate

Verify any requests from a manager, CEO or board member that requests the movement of money through a tiered system, where email or telephone instructions are verified by a second contact.

(3) Introduce checks

instigate checking of communications amongst finance and account-handling teams for things such as correct email addresses, use of English, or other mistakes.  Encourage a system whereby suspect emails are checked by a second team member.

(4) Protect

Antivirus software must be kept up to date, and computer systems must be secure.  This is not an additional cost but an essential part of day-to-day business practice.

(5) Be alert

Watch out for suppliers or clients that insist on payment by cheque or via a bespoke payment system that is out of the norm.

The impact

There is general agreement among all small business sectors that losing money to fraudsters could have a devastating impact, including job cuts, the business being scaled back or even folding.

Unfortunately, the victim of these types of fraud regularly end up bearing the cost of the loss – this is despite 30 per cent of all small business owners, surveyed across all sectors, believing that their financial institution should cover the loss.

That means that all small businesses must act now to protect themselves from fraud, and specifically in those sectors that have been identified as most susceptible. This is now a real threat, whether your business is a two-person operation or two hundred-strong company.

Jim Wadsworth is managing director at business insights firm Accura, part of VocaLink

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