March is Fraud Prevention Month in Canada. Small business owners already know that fraud is out there and something to be on the lookout for, but they may not always know how to spot it or what steps to take to help prevent it.
What Is Fraud?
Unfortunately, fraud can take on many forms. Some might seem obvious, but others are hard to spot, especially for the untrained eye. And sometimes, it can come from inside your own company.
For example, employee theft is a common source of internal fraud – from lost inventory to unethical accounting practices or the theft of financial and physical assets.
Externally, potential sources of fraud are much broader. External fraud may come in the form of counterfeit bills, bad cheques, or the use of stolen credit cards. False returns can also be a problem for businesses with a retail component. In addition, there are anonymous threats, such as computer hacking, scam callers, and information theft from outside sources.
Types of Scams That Can Affect Your Small Business
There are several scams you and your employees should be aware of, including:
Business grants and loans scams
This type of fraud usually takes the form of a website claiming to be a government department helping small businesses get “special access” to grants and loans for a fee. The first thing to remember here is that government departments or agencies do not charge for services and information to help you apply for government grants and loans.
A seemingly legitimate business directory supplier contacts you to confirm your address and contact information. Then you receive a second call to “confirm” that you have agreed to purchase the directory listing. A few weeks later, you receive an invoice for several hundred dollars for online advertising you never agreed to buy. They say they have a recording of you agreeing to the services and threaten to send your file to a collection agency if you don’t pay.
Office supply scams
This scam is when you or your buyers receive a message from someone claiming to be your regular provider of specific office supplies. The scammer might imply a government requirement to replace an “expired product” and that you could face a fine if you don’t comply. They then request that future payments for supplies be made to a new account.
Intellectual property renewal notice scams
In this form of fraud, you receive a letter or an email that looks like it is from the Canadian Intellectual Property Office (CIPO). This message pretends to be a government reminder that your company’s intellectual property (IP) rights must be renewed. The instructions are for you to pay a specific amount to renew them.
There are others. The Competition Bureau provides a comprehensive list of different types of fraud to be wary of in its Little Black Book of Scams.
8 Ways to Protect Your Business From Fraud
You can do many things to mitigate the chances of becoming one of the many companies every year in Canada that fall victim to fraud, including:
1. When hiring, do background checks
Do thorough background checks on all applicants you intend to hire and ensure their employment experience is valid by contacting their former employers. Also, do criminal background checks on people you intend to hire through the Royal Canadian Mounted Police.
2. Separate accounting and financial records duties
Don’t allow one employee unrestricted access to your business bank account or credit cards, and have sole control over and access to all of your business’s financial responsibilities.
3. Conduct surprise internal audits
Random, surprise audits of inventory, product returns, accounting and bookkeeping functions, and financial transactions can help uncover and prevent fraud.
4. Create an anti-fraud policy and educate your employees
Implementing a clear, anti-fraud policy and training your employees to spot and stop fraud and theft can up your protection. For example, employees shouldn’t share the same passwords and login credentials when accessing your company’s software systems and email. Use unique, strong passwords and change them frequently.
5. Maintain detailed records
Accurate record-keeping is essential for all businesses. From inventory control procedures to the invoices and bills you pay to partners or temporary contractors, accurate, detailed records on all business operations can help discover and deter fraudulent activities.
6. Inspect all invoices before paying anything
Carefully read all invoices you receive for payment to any provider and verify they’re real. Look for the vendor’s contact information, examine the purchase order number, invoice number, description, and payment terms.
7. Update your business insurance policy
Generally, all self-employed professionals and small business owners should review what’s changed or new to the products and services they offer before renewing their insurance policies. You need to update your policy for many reasons, and keeping it up to date is critical if you need to file a claim. To help your business recover from fraud, you may need to include cyber liability insurance in your policy.
8. Watch for internal fraud
Not all fraud is financial; fraudulent attacks don’t always come from outside your company. Whether inventory theft, confidential data theft, or the embezzlement of funds, have internal procedures in place to thwart theft, such as routinely tracking your inventory and reporting discrepancies and enforcing strict data protection policies. Furthermore, think about adding commercial crime insurance protection to your overall policy.
How to Report Business Fraud in Canada
If you suspect your business is a victim of fraud, it’s recommended you take the following steps:
- Contact your local police force. File a report with your local police department and request a copy of their report you can share with your insurance broker if you file a claim.
- Report it to the Canadian Anti-Fraud Centre. The Centre collects information on fraud, identity theft, and cybercrime. Report what’s happened to your business using its online form, or call toll-free 1-888-495-8501.
- Notify the Canadian Centre for Cybersecurity. Report any cyber incidents to the Canadian Centre for Cybersecurity. The information you provide will help the Centre provide cybersecurity advice, guidance, and services to other organizations.
- Contact Zensurance. Don’t hesitate to contact your Zensurance broker to inform them. They can assist you if you need to file a claim or are unsure what type of coverage your small business needs to be adequately protected.