Member Article

Fraud protection: 5 steps businesses can take

The media is littered with stories of consumer victims of fraud. But the reality is that businesses, particularly smaller enterprises, are more often the victims of fraud than consumers. And in some instances they can be held responsible in a business fraud scheme, owing liability to banks, shareholders, insurers, credit card processors and other entities. For more information contact a law firm like Irwin Mitchell, after checking these five steps a business can take to protect themselves from fraud.

Internal and External audits

Work processes, inventories, and accounting should be subject to both scheduled and surprise audits. These areas can be altered in advance of regular audits, but knowing a surprise audit may occur removes temptation and increases the chance for fraud detection. At regular intervals external auditors should be employed to review these same areas. This may be required by law, depending on the size of your business and whether it is a public enterprise. Thus, it makes sense to set up external audits early in the history of your business so compliance with applicable laws and regulations can be achieved as your business grows.

Identify Signs of Fraudulent Activity

Protect your business by watching for signs of fraudulent activity. There are a few common forms of suspicious activity to look out for: orders for multiple high-end products, bulk orders for products that are rarely bought in large quantities, numerous orders placed by the same customer in a short period of time, international orders, and a large number of orders placed before you have begun advertising. A lot of orders placed soon after opening your business may indicate fraudulent activity. Con artists target new online merchants, because they know that new merchants are often inexperienced.

Prevent Payment Fraud

Completely eliminating credit card fraud is impossible but there are tactics you can use to avoid accepting fraudulent credit card orders. These are three simple tactics that will help reduce the risk of credit card fraud:

- Require a Card Verification Number (CVN). This is usually the three digits on the back of the card. On American Express cards it will be the four digit number on the front. Since the number has to be read from the actual card this provides a small measure of protection against fraud

- Require Address Verification System (AVS). This system enables you to see if the address provided matches the actual address of the credit card holder. The credit card processor should perform AVS checks on every order placed.

- Require the shipping address to match the Billing address. This allows orders to only be sent to the same address that the AVS has approved. The Billing address is usually the card owner?s residence.

Investigate Suspicious Activity

If you detect any suspicious activity it?s important that you investigate it before shipping anything. Sometimes there will be obvious signs but on some occasions you might just be following your gut. In order to prevent the unnecessary hassle of dealing with fraud it?s always a good idea to investigate situations that feel off. Although a bank cannot give out information they can confirm information. If you smell smoke, contact the issuing bank to confirm the customer?s details. If the customer doesn?t answer or respond to messages then you may well be dealing with a fraudulent order. Con artists generally use free email from foreign countries. If you do not recognize the domain, then perform a quick search online. If the page comes up as under construction, a personal page, or something that looks suspicious, then you may be dealing with a fraudulent order.

Employee Tips and Reporting

A good, but often overlooked way to prevent fraud is to develop an anonymous way for employees to report suspected fraud and work practices that lead to fraud. Businesses that introduce anonymous employee reporting detect fraud earlier and significantly limit financial losses. An anonymous tip box is a good way to go about this.

This was posted in Bdaily's Members' News section by Jonny Marshall .