Protecting yourself against fraud is a matter of good business practice

Every year, perpetrators come up with new methods for defrauding your company of its hard-earned capital. The hyper evolution of the internet — with AI on the rise — continues to threaten businesses with new schemes. It’s difficult to keep up with all the products and services required to defend against fraud. But security solutions all have one thing in common. When it comes to safeguarding your company, good business practices will always be your best protection.

Small and medium business owners are the perfect target for fraud

According to the NetDiligence 2023 Cyber Claims Study, small to medium-sized businesses (SMBs) accounted for 98 percent of cyber insurance claims — totalling $1.6 billion in losses.

It’s a common misconception that large corporations are more likely to experience a fraud or cyber attack. This gives many small to medium-sized businesses a false sense of security. And it’s why many SMBs fail to put the proper controls, precautions, and processes in place. The belief that perpetrators are too busy with bigger fish (and failing to follow good business practices) is precisely what makes SMBs an ideal target.

Common attacks include identity fraud, investment fraud, romance fraud, extortion, and phishing — enacted through tactics such as direct call scams, emails, social media, and texts. The biggest weapon the fraudster has? Data and information. And small to medium businesses give no shortage of ammunition.

Blurring the line between personal and professional

Information security risks are more numerous than ever. The line between personal and professional lives is disappearing. Workdays are less defined. Emails and phone numbers cross over. Online profiles reveal a treasure trove of personal and professional information.

A perpetrator could look an employee up on LinkedIn and cross-reference that information with their online dating and other public social profiles. The more data and information they have, the more believable their scheme will seem, and the more successful they will be in exploiting your weaknesses.

In general, the information of small to medium businesses is more accessible. It’s a recipe for security threats to materialize. A lot of companies believe they’re protected by using modern tools like antivirus software. But the security of your company is facing a greater challenge than cyber threats.

Taking the “cyber” out of cyber security

It’s not just about cyber security. It’s about security. Good security is a good business practice. Before the internet, phone scams were common. Tools like caller ID, answering machines, directories, and call return helped to reduce the threat. More importantly, businesses encouraged employees to be more cautious about the information they shared over the phone. A growing culture of training and security awareness continues to help companies protect against phone scams.

SMBs need to prioritize the same principles around all frauds, whether defending against timeless fraud schemes or the next age of digital attacks. Protecting your business is not just about using a security product, a department in the business, or a third-party service. It’s about the daily practices and procedures everybody in the organization adheres to throughout the course of business. These practices must address the true nature of fraud.

It’s a matter of trust

Fraud is almost always the result of someone (or some system) providing trust too freely.

A common cause of internal fraud is requiring only single signatures on cheques because those individuals with signing authority are in a position of trust. Similarly, external fraudsters often rely on building rapport and/or securing a false sense of trust.

For example, someone might email your employee posing as the CEO or other senior leader and make a request (e.g., buy gift cards and mail them to a client). The employee trusts the message simply because it came in an official-looking email. The implied trust by such an authoritative position makes it easy to dismiss requests that seem outlandish. Nobody wants to be the one to say no to the CEO.

Whether door-to-door, over the phone, or online, fraud exploits a lack of process to elicit trust. Trust is the common ingredient for all kinds of schemes.

Process is protection

Processes are the timeless and most cost-effective shield against security threats. You can buy every security product on the market, but if you don’t have the right processes in place, you and your business will always be vulnerable to attacks and fraud.

Consider the CEO email example above. This is far less likely to succeed if you have a process whereby all purchases in your company must go through approved channels.

Other standard processes to reduce the potential for fraud include regularly changing passwords for online banking, setting up spending alerts, requiring dual signatures for large transactions, and two-point verification (multi-factor authentication) to ensure that only authorized people can access critical systems and accounts. These processes all protect your business against fraud. And they all have one thing in common.

The keyword is verification

Fraud prevention ultimately boils down to one word: verification.

Implementing processes to verify requests, inquiries, and interactions is the key to protecting yourself and your company. Put processes in place to verify logins and financial transactions. Verify who you place your trust in through background checks. Consider who is getting access to passwords and accounts. Establish processes to verify that you can trust that person — and create whistleblower programs to raise the alarm if that trust is being violated.

Of course, modern tools like antivirus and malware software are essential. Fraud and cyber insurance is prudent. All of these tools bring value to address your security challenges. But they should be a backstop to support other processes for verification — these are the best business practices for protecting against fraud.

Make time for good business

Small to medium-sized business owners are busy. With so many competing priorities, you may just be looking for simple solutions for fraud prevention. A plug-and-play security solution that you can set and forget.

Unfortunately, fraud is too dynamic and nuanced for any single tool to protect against. There is always a place for these different tools and products. But they have to exist within a framework of process. A series of verification checks that permeate your company culture.

You already know what it takes to run a successful business. Your company’s security should be an extension of that mindset. Protect yourself with what you do best — good business practices.