Business fraud and how to avoid it: 10 top tips
Fraud against businesses is on the rise. Unlike the protection afforded to consumers, small businesses and limited companies need to meet certain eligibility criteria to claim compensation with the Financial Services Compensation Scheme (FSCS), with eligibility on a case-by-case basis that varies for different types of claims.
Due diligence, internet controls and risk management are crucial to avoid being scammed, and it all starts by appreciating that fraud can come from anywhere, including:
- Staff members
- Customers
- Suppliers
- Third parties, unconnected to the business
10 top tips
1. Trust your instincts
If it sounds too good to be true, it probably is. Thoroughly question all unusual deals, opportunities, documents, and transactions, and encourage all your staff to embrace the same ethos. If you are in doubt, check it out first.
2. Implement strong internal controls
Ensure internal controls, policies, and procedures are in place and adhered to for anything that involves a financial transaction, such as the sale and purchase of all vehicles and stock and the transfer of any legal documentation, for example, V5s. This includes procedures for authorising, recording, and reconciling financial transactions and safeguarding the business’ assets.
3. Pre-employment screening
This should be a core part of recruiting a new team member. UK employment background checks usually consist of some or all of the following, most of which are regulated by law: criminal record checks, right to work checks, DVLA checks (for employees driving on company time, and health checks (used exclusively for cases where it is a legal requirement. For example, eye tests for commercial vehicle drivers). It is also possible to verify education and employment background and social media screening (used by some employers to gain insight into a candidate’s values and attitude).
4. Know your customers and suppliers
Conduct due diligence using a risk-based approach, such as checking the customer or supplier details you have on file and by using online searches. Never pay an invoice from someone you have not verified.
5. Watch your money
Watch your bank account every day to understand how money leaves your business, or enable your banking apps to notify you of money going in and out of your accounts, including:
- Methods of payment
- Who has the authority to make those payments (have at least two people handling any payments, if possible)?
- Who checks payments are legitimate?
Fraudulent invoices for goods and services are widespread; it might look real, but is it? Fraudulent invoices, often for well-known publications and scams related to advertising in charitable publications, are sadly all too common. If it doesn’t look or sound right, don’t pay; check it instead. Also, if a supplier changes their bank details, always verify this change is correct.
7. Provenance and legal duty attention
Care must be taken to ensure that you have good title to all stock and that the check is verified (if it sounds too good to be true, be suspicious). Similarly, you must know your legal responsibilities to customers in areas such as distance selling. A dealer won a recent case, with the judgement referring to the customer as ‘at best misleading and at worst untruthful’.
8. Cyber security
Ensure you have a cyber security policy, you can see our other post on this subject here.
9. Embrace UK Finance’s ‘Take five to stop fraud'
Take Five is an initiative led by UK Finance. It aims to encourage people to stop and take time to think before they act. Always remember these five rules:
- Never disclose security details, such as your PIN or full banking password.
- Don’t assume an email, text, or phone call is authentic.
- Don’t be rushed – a genuine organisation won’t mind waiting.
- Listen to your instincts – you know if something doesn’t feel right.
- Stay in control – don’t panic and make a decision you’ll regret.
10. Always report fraud and get help
Action Fraud is the UK’s national fraud and cybercrime reporting centre. You can also get information about fraud and financially motivated internet crime.
You can also report fraud to the police if you know the suspect or they’re still in the area. Call 101 to speak to an operator.
As always, we hope this helps.
