Business fraud is any illegal or dishonest activity intended to deceive, conceal, or mislead a government body, company, financial institution, or individuals, often for the purpose of financial gain. It can also sometimes be known as corporate fraud.
Business fraud schemes can have severe repercussions for the companies that fall victim to it, including financial losses, legal risks, and critical public relations damage.
Business fraud can refer to a wide variety of different crimes, which can be committed by customers, suppliers, partners, or even a company’s own employees. Common types of business fraud may include:
While fraud is an ever-present threat to company security, businesses can take numerous steps to protect themselves and help prevent or detect any illegal activities, whether internal or external. Proven best practices include:
Employees are one of a business’ best defenses against fraud. All company workers should be trained annually on recognizing fraudulent activities and flagging any suspicious activity they observe, whether from partners, clients, or even their colleagues. These policies should also include strong whistleblower protections, to encourage employees who might fear punishment or reprisal.
In addition to employee education, businesses can also implement specific processes and safeguards when conducting financial transactions, such as requiring signatures, sign-offs, and clear documentation for certain types of orders or transfers. Moreover, companies should routinely audit these controls and update them as needed.
To prevent partners and clients from possibly defrauding the company, businesses should invest in strong know your business (KYB) and know your customer (KYC) verification practices so they can clearly confirm the financial health and status of any other organization or person they conduct business with.
Manually trying to prevent fraud can be a difficult, time-consuming, and likely an unsuccessful effort, given how sophisticated fraud actors can be. But with the right systems and digital safeguards in place, companies can more effectively monitor transactions and the flow of information and catch potential fraud activity. By setting up additional safety requirements, such as two-step verification, and automatically flag any transactions that seem suspicious, businesses can protect sensitive information and assets.
