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Signs of Fraud Every Business Should Know

January 28, 2015

fraud alertActs of Fraud come in many forms and the warning signs are not always clear. Being able to recognize these signs could save any business a lot of trouble and money. Whether the threat might be internal or external, each type has its own specific indicators. Failure to detect the warning signs can lead to legal and financial nightmares for business owners.

One type of External fraud, where a customer tries to use a fraudulent form of payment, might be the easiest form to recognize, but a watchful eye is necessary to catch it before the damage is done. Unfortunately, stolen credit cards—the most common form of external fraud—are fairly common and with online ordering, recognizing that there is a problem is harder than ever.

Here are a few things to look for, both with face-to-face sales and through online ordering, to make sure your business isn’t being duped.

For in-store purchases, double-check customers who:

• Ask questions about credit limits or the authorization process
• Attempt to distract or hurry the clerk (asking lots of questions, making purchase right at store closing time, talking continuously, etc.)
• Purchase high-cost items and either do not ask questions or refuse delivery even if it is free (for large items)
• Ask to see the card again before signing the receipt
• Do not have a driver’s license for whatever reason
• Request to ship outside of the U.S.
• Recite the card number from memory rather than presenting the card itself

For online purchases, look for anything out of the ordinary, such as:

• Unusually large transactions
• Several purchases in a row, especially if they are odd or unusual
• Gibberish names or strange-looking email addresses
• Shipping addresses do not match the billing address, especially drastic differences such as a shipping address to another country
• A phone number that does not match customer records or a returned email

In these cases, the best option is to use good judgment and check carefully to ensure that the customers you’re serving are truly who they say they are. For return customers or online customers, make phone calls just to check.

Internal fraud, on the other hand, is a much trickier matter. In these cases, an internal member of the business, usually a high level employee, steals funds in some form. Recognizing the presence of internal theft is mostly a matter of understanding the nature of those who would commit fraud and keeping eye out for red flags.

Three elements are always present when an employee turns to internal fraud:

• Opportunity—access and ability to get away with the theft
• Pressure—a present need for money, sense of entitlement, or any number of other factors
• Rationalization—a way to reconcile his/her actions with commonly accepted notions of decency and trust (“I really need this money, so I’ll pay it back when I get my paycheck”)

Often, the lack of the first, opportunity, would remove the possibility of fraud altogether. However, people are tricky so it’s not a guarantee, but here are some ways that you can prevent the presence of opportunity and lessen the likelihood that your business will fall prey to internal fraud:

• Strengthen internal controls (supervision and review processes, separation of duties, management approval, etc.)
• Be aware of the employees who do have access and opportunity—know them and their pressures and triggers, and take the time to be aware of any financial strains
• Pay attention to employee interactions—collusion between one or more employees is often a contributing factor in internal fraud
• Watch inventory and personally review purchasing from time to time to ensure sales and products sold do match—random spot-checks keep everyone wary
• Set cameras if you can or invest in software that will carefully monitor purchasing and limit regular employee access—there are some creative ways to trick the system and the less access, the fewer options to make that happen

Certainly, there is no foolproof way to completely escape the impact from theft. However, you can limit it by being aware, present, and involved. Most importantly, businesses should recognize the possibility and likelihood that they will face some kind of fraud and train employees accordingly, as well as have a system in place for handling any situations that arise. If you can’t prevent it outright, then at least be prepared for handling it in order to minimize loss to your company.

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AshleyAbout the Author – Ashley Choate is a native of Jacksonville, FL where she lives with her son, dog, and three cats. She graduated Magna Cum Laude from Jacksonville University with a BA in English and holds an MAED in Adult Education and Training. She lives for reading and writing, learning and teaching, and figuring out the day-to-day traumas and joys of mommyhood. .