Knowledge V Fraud: How being in the know can protect your SME

It might be a cliché, but knowledge really is power. This is true in the classroom, it’s true in business and it’s true in the fight against fraud. In fact, knowledge of all aspects of your business is one of the greatest weapons in your arsenal if you want to keep your SME safe from the estimated £18.9 bn worth of losses caused by fraud which hit UK SMEs in 2013. The more you know, the more equipped you are to identify weak spots and discrepancies.

Today I’ll be exploring exactly what you need to know, how you can stay abreast of this information and how it can help your business stay safe in an economy increasingly prey to fraudsters.

Your toolkit

Before we start looking at specifics, I want to provide you with a few helpful tools which you can use to equip yourself with the information you need.

Firstly, take some time to explore free company checking databases. These websites offer a pretty thorough checking service, if you’re keen to get started. When you use this type of tool, there’s an awful lot you can learn about everyone, from your employees and partners, to your associates, competitors, customers, suppliers – you name it. From records of late and missed payments, to evidence of legal action taken against them (including CCJs), not to mention tell-tale red flags like regular company name changes and dubious looking assets, all of this knowledge will help you take evasive action when a fraudster appears on the scene.

Next, it’s time to get to grips with payments. This is a real area of weakness for smaller businesses which it why it’s so important to understand what the risks are and how to minimise them. Secure file transfer specialist Thruinc blogged about Financial Fraud Action and the Bank of England have a great deal of information geared towards helping small businesses understand how to minimise fraud at the point of payment.

Finally, you need to protect your digital assets. These assets may not be as obvious as you might think. Personal, customer and company data, for instance, is a very valuable asset which needs to be carefully protected. Making sure you have tight online and data security in place is crucial. Get Safe Online and the Information Commissioner’s website all have very worthwhile guides which are well worth using to improve your anti-fraud toolkit.

Know your customers

Now you have a few key tools and resources, it’s time to find out what you need to know. When it comes to customers, a very small minority could in fact be fraudsters. The fraud itself can occur in many different guises:

  • Using forged currency or another person’s payment card details

  • Building trust before placing a large order on credit they do not intend to repay

  • Electronic payment and card fraud

  • Cheque fraud and cheque overpayment fraud

  • Long or short firm fraud

Again, knowledge is the best tool here. Before processing any uncharacteristic transaction or extending any amount of credit, use a background checking service to ensure the customer is who they say they are. You can also ask them direct questions about what they plan to do with the product to ascertain that they are not fraudsters. It is also well worth knowing which types of transactions are suspicious. Look out for:

  • Irregular or unusual purchasing patterns

  • Any alarm bells surrounding delivery (e.g. A lack of concern with large delivery charges, unusual overseas deliveries)

  • Any request to bypass your usual processes (i.e. invoicing, delivery etc.)

  • Lack of interest in details/specifications (particularly with costly items)

  • Cheques worth more than the charged amount (do not refund the difference, this is likely to be a scam)

No single warning sign is confirmation of fraud, instead they should be seen as a red flag and a sign to dig a little deeper before progressing with a transaction.

Know your suppliers

There are any number of ways a “supplier” could defraud you. Fraudsters can pose as suppliers or, alternatively, trusted suppliers can start to overcharge you (often with the help of a member of your team). Full company checks and credit checks on all new suppliers are essential to protect you against the former. The latter is a little more difficult to fight but you should be aware of the different common frauds so you can recognise them before they affect your business:

  • False invoice scams and mandate fraud

  • Office supply scams

  • Business directory frauds

  • Insolvent suppliers and fraudulent trading

  • Purchasing and procurement frauds

  • Advance fee frauds

Know your staff

Internal fraud is surprisingly and unfortunately all too common and it can be tricky to detect. From working with suppliers to falsify invoices, to submitting inflated travel claims, this is a slippery corner of SME fraud which is tough to police.

Up front pre-employment background checks are useful for ensuring that your potential employee doesn’t have a history of fraudulent behaviour but there’s no guarantee that a trusted employee won’t one day make an unfortunate decision… An open work environment and atmosphere based on mutual trust, with clear no-tolerance policies on fraudulent behaviour is often the best, albeit trickiest, measure to put in place.

How much do you know about the suppliers, employees and customers you work with? Do you feel that you know enough about SME fraud to protect your business against it? Share your experiences, tips and views with readers below.

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