How to prevent fraud and deal with fraud

If you are a small business owner, fraud is something you will probably encounter at some point in your business life. Here’s how to spot fraud and prevent it.

What is fraud?

Simply put, fraud is an act of deception for personal gain.

The most common types of fraud occur in relationships between an employer, a customer, a client, or colleague or between an individual and a company.

“Stay calm. Enlist expert help to prevent further losses and to investigate lawfully.”

What are the most common types of fraud facing SMEs?

The simple answer is staff stealing from their employer. 85% of reported frauds fall into this category. Cheque tampering, cash skimming and payroll fraud all happen more frequently in SMEs than larger firms.

The types of fraud facing SMEs and business owners today range from straight forward cash skimming, stock shrinkage, cheque tampering, payroll abuses, fake supplier invoices and supplies theft right through to intricate well-planned deceptions involving bribery and corruption costing hundreds of thousands of euro.


What’s the first/best thing you should do to prevent fraud?

You need to develop and implement a robust anti-fraud strategy. Make sure all staff receive fraud awareness and prevention training.

Over 42% of frauds are discovered through tip-offs. You should have a confidential way for employees to report fraud.

What’s the first thing a business owner should do when he/she suspects fraud?

Stay calm. Enlist expert help to prevent further losses and to investigate lawfully. Don’t take steps that may ‘tip-off’ a suspected fraudster or try to investigate it yourself.

How you respond in the first hours and days will determine the success or otherwise of the investigation and subsequent disciplinary actions. 

What should they do when their suspicions are confirmed?

  1. Prevent further losses – ‘lock the gates’ as it were, unless you need to gain further evidence.
  2. Investigate lawfully – do not approach the person(s) suspected of engaging in fraudulent activity. Get expert help to co-ordinate the response and to avoid tipping off the culprit.  
  3. Establish a clear communications plan – remember that all communications in respect of the investigation may be discoverable in the event of an appeal; therefore, a clear communications plan needs to be established from the beginning.
  4. Try to recover losses with the help of forensic accountants and others.
  5. Consider what sanctions to pursue against the fraudster whether, disciplinary, civil, regulatory, criminal or a combination.

Is fraud on the rise, and does it have to do with the digital age we live in?

According to the European anti-fraud agency the total global impact of cybercrime [has risen to] US $3 trillion, making it more profitable than world trade in marijuana, cocaine and heroin combined. PWC estimates that Cybercrime has doubled in Ireland in the last two years. Such have been the advances in technology that cybercrime is now a daily risk. We all need to take basic precautions when online.

Three simple steps everyone can take to stay safe online:

  1. Use strong passwords; using three random words is very effective.
  2. Install security software that protects against viruses and hackers.
  3. Download software updates as they patch any security flaws.

READ MORE: Data leaks, security breaches and what to do when it happens.