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Easy Steps for Fraud Protection

Chelsea Sauder • Nov 12, 2019

November 17-23, 2019 is International Fraud Awareness Week.  

Small to Mid Size Businesses Risk to Fraud Statistics

 “Fraud Week” is spearheaded by the Association of Certified Fraud Examiners (ACFE), who estimates businesses lose 5 percent of their revenue each year due to fraud.  While fraud defense is certainly important all year long, Fraud Week is a chance to shine light on the issue and spread key strategies you to protect your business.  No matter your business size, everyone is at risk to fraudulent activities.

 

Businesses with fewer than 100 employees lose almost twice as much as businesses with >100 employees.  These smaller businesses generally have less robust anti-fraud controls, if any, and are therefore more vulnerable.   

The good news? Fraud is generally predictable, and once recognized you can take the appropriate steps to limit your exposure to losses. According to ACFE studies, 85% of cases displayed at least one red flag behavior by the fraud perpetrator, and in 50% of cases there were multiple red flags. 
Six most common behavioral red flags found in every ACFE study since 2008 are: 
  • Living beyond means 
  • Financial difficulties 
  • Unusually close association with vendor/customer 
  • Control issues/unwillingness to share duties 
  • Divorce and family problems 
  • “Wheeler-dealer” attitude 
Detecting and preventing fraud requires a multi-pronged approach, including both human behavior and technology controls. Successful human behavior steps focus on recognizing the red flags.

Five immediate steps your organization can take to improve employee behavior for recognizing fraud are: 
  1. Be Proactive. Adopt an organizational policy around fraud and ethical behavior. Take time to look around within your business and identify areas that may be vulnerable to fraud. Don’t stop thinking about the possibility of fraud just because Fraud Week is over! 
  2. Hiring Procedures. Conduct thorough background checks on candidates for hire. Check educational, credit, and employment histories as permitted by law. This step requires a monetary and time investment. However, your initial costs will be much less than any potential losses you may experience as a victim of fraud. 
  3. Train Your People. Do your personnel know the red flags above and the warning signs of fraud? Have you provided employee training covering basic prevention techniques? Some easy tips from the US Federal Trade Commission: 
    1. Spot Imposters – Scammers rely on the victim believing that the scammer is trustworthy, so even when you think you know the person making the request, don’t give out money or information to an unexpected request – whether it’s a text message, phone call, email, or other method. 
    2. Don’t Believe Caller ID – Just as you can write any return address you like (that is, not your own address) on an envelope when you put it in the mail, Caller ID is easy to fake and the number displayed should never be considered trustworthy. If you receive a call asking for money or sensitive information, do not divulge it without first authenticating the person on the other end. Call them back at a known good phone number. It might even be the number on your caller ID, but when you dial it, it goes to the actual person, not the scammer. 
    3. Slow Down and Verify – Scammers want to do everything possible to convey a sense of urgency and get you to believe you must take action right away. That’s almost always not true. Remember the phrase JDLR for “Just Doesn’t Look Right” – if it seems unusual or suspicious, don’t brush that off – take a minute and check it out. 
    4. Consider a Fraud Hotline - Most fraud cases are discovered by a tip. Having an anonymous reporting system available to your employees, contractors, and customers can help uncover high risk and fraudulent situations and actions. 
    5. Keep Fraud on Top of Minds - Communicate with staff regularly about anti-fraud policies, methods available to report suspicions, and the potential consequences of fraudulent behavior. 
The second component that can help with fraud detection and prevention/mitigation is technology. In the age of artificial intelligence and behavioral analytics by computer, what these tools all fundamentally do is reinforce the training mentioned above helping people identify potential fraud behaviors. 

Three immediate steps to use technology to protect your employees from fraudulent activities are:  
  1. Tag Your Emails! Have you ever noticed when you email someone outside of your company and they reply to you, the subject line of the email might change slightly, usually containing [Ext] or [EXTERNAL] before the original subject? This is a feature of email systems to warn the user the message came from outside of their company. Using these tags are helpful because many email applications show only the sender’s name, which may be fraudulent, without displaying the actual email address. If your company uses Office365, this tagging is free to use but isn’t enabled by default.
  2. Use Multifactor Authentication! Sometimes despite awareness and training, people still make mistakes. A threat actor might steal a username and password or convince somebody to click a link that results in malware giving the bad guys access to their computer. If you’ve enabled multifactor authentication, user credentials or back door access will only get the threat so far. Multifactor authentication requires additional information to be provided to confirm the identity of the user, such as receiving a passcode via text. If mulitifactor authentication is enabled and the threat does not have access to the required information there are limitations to their access into your system. Like email tagging, many applications (including Office365) include this capability for free, but do not enable it by default. Make sure your IT team has set a plan in place to enable all eligible applications with multi-factor authentication. 
  3. Be Vigilant with Digital Permissions! It’s easy to give all your employees the same level of computer access. But there’s no reason for a marketing intern to be able to access sensitive systems like HR or Finance. Take the time to establish set rules for creating new user accounts and granting relevant permissions to user types. Make sure these user policies include everything from internal staff as well as contractors or third parties that may need limited access to your systems. Why is this so important? While all your users may be trusted to only use the system for their role, that cannot be said for an attacker. With many people using a common password from personal accounts to work computers the risk of compromised credentials is increased. Combined with the fact that there are over eight billion known compromised accounts from hundreds of data breaches, odds are pretty high that people may reuse a password that’s already been compromised. While we all know that no one should ever reuse a password, the reality is that it happens. Don’t leave this low hanging fruit for criminals to perpetrate fraud. By following a digital permissions policy, you limit the access of one compromised account on your entire system.
During the rest of International Fraud Awareness Week, we encourage everyone to take a look at what their organization can do differently to protect themselves and their employees against fraud more effectively. Contact TexasPGB for a thorough cybersecurity audit and implementation of digital strategies that can protect your systems. 
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