How to Avoid Becoming a Victim of Business Financial Fraud

Business financial fraud can affect any type of organization, from small businesses to large corporations, as well as investors, customers, suppliers, employees, and regulators. According to the Federal Trade Commission (FTC), consumers reported losing more than $5.8 billion to fraud in 2021, an increase of more than 70 percent over the previous year. The FTC received fraud reports from more than 2.8 million consumers last year, with the most reported category being imposter scams, followed by online shopping scams.

Business financial fraud can be difficult to detect and prevent, as fraudsters often use sophisticated techniques and technologies to conceal their activities and evade detection. However, there are some steps that businesses and individuals can take to reduce their risk of becoming victims of business financial fraud.

One of the best ways to prevent business financial fraud is to have effective internal controls and audits in place. Internal controls are policies and procedures that ensure the accuracy and reliability of financial information and transactions, as well as compliance with laws and regulations. Audits are independent examinations of financial records and operations to verify their validity and identify any errors or irregularities.

Some examples of internal controls and audits are:

• Segregation of duties: assigning different people to perform different tasks related to a financial transaction, such as authorization, recording, custody, and reconciliation.

• Authorization and approval: requiring proper authorization and approval for all financial transactions and activities, such as purchases, payments, contracts, and loans.

• Documentation and verification: maintaining adequate documentation and verification for all financial transactions and activities, such as invoices, receipts, vouchers, bank statements, and tax returns.

• Reconciliation and review: reconciling and reviewing all financial records and accounts on a regular basis, such as daily, weekly, monthly, quarterly, or annually.

• Reporting and monitoring: reporting and monitoring all financial performance and activities using various tools and indicators, such as budgets.