Fraud & Risk Prevention Tips For High-Risk Industries
Fraud is committed for various reasons and is influenced by greed, ambition, revenge, or just plain stupidity. Fraud prevention requires an integrated approach to minimize risks in all company areas and provide the best possible protection against fraud.
Effective fraud prevention cannot be a one-size-fits-all approach. It must be tailored to the individual risks in each industry and company. There are several different methods of preventing fraud, but it is important to understand why you’re doing whatever method you choose so that you can find the most appropriate solution for your needs.
This article aims to provide an overview of how to manage fraud and risks associated with high-risk industries.
What Is A Fraud, And What Are The Different Types Of Fraud?
Fraud is the unlawful obtaining of money, property, or services by deception and an illegal act. Fraud in high-risk industries consists of many different types, including email hoaxes which are a type of spam where the emails have fraudulent links to infected websites that attempt to install malicious software on your computer; credit card fraud which is committed when people use phony cards to acquire merchandise at retail establishments; bribery and kickbacks, experts forgeries such as counterfeit checks and false invoices.
- Forgery is making a copy of an invoice, check, or other documents.
- Fraudulent conversion is using someone else’s money to pay your own debts. This includes writing bad checks and using stolen credit cards.
- Embezzlement is taking the company’s money for your own benefit. You usually commit embezzlement when you are in a position of trust.
- Bribery and kickbacks are illegal payments given to influence another party, such as a government official or employee.
- Forged documents include fake sales contracts, invoices, passports, diplomas, and IDs.
- Billing fraud is charging for products that were never delivered or done. You can commit billing fraud with a fake invoice or by charging for services you never performed.
- Identity theft is using someone’s personal information to pretend that you are them. You usually steal someone’s identity to get credit cards, mortgages, or loans in their name. You can also use this information for other crimes like buying property without paying for it.
- Price manipulation is raising or lowering the prices of goods so that the consumer cannot compare the actual value with its cost. This practice results in unrealistically high profits for those businesses that manipulate their prices.
This list above is not definitive but rather just examples of fraud methods and possible areas where fraud could occur.
There are several specific risks for high-risk industries that can be prevented by implementing specific fraud prevention solutions. The company might risk losing a lot of money and critical customer data.
Things To Consider For Each Industry:
Monetary value: The more money you make from your product and services, the higher your risk of fraud.
Time: The more time you need to make your product and services, the higher the risk of fraud. This is because it’s harder to prevent if you use a larger amount of time when ordering goods or services. ·
Proprietary data: In high-risk industries, companies store critical information important for the clients’ businesses, such as the client’s customer lists or accounting data.
Distribution: If your business has to send and ship its products across a large geographical area, this increases risks because it is harder to control if something goes wrong with a delivery.
Overhead: High-risk industries involve overhead costs like salaries and rent, making it easier for fraud to occur.
Identifying the risks for your industry is essential for risk management. The first step in preventing fraud and protecting yourself from high-risk industries is identifying the risk factors you face so you know how to deal with them.
Areas of responsibility: Who in an organization should have the ultimate control of fraud prevention? It’s important to know who is responsible for what. This section will present a brief overview of how organizations can handle fraud within their own policies and how you can keep yourself protected when dealing with other parties.
Your organization should be able to identify potential areas of fraud.
- The highest risk may be in purchasing since this department handles large amounts of transactions.
- In the IT department, you could face data manipulation or theft from external clients.
- Sales are also another high-risk area because they often work with smaller orders and unsecure payments.
These are only a few examples; each business should examine its own activity for potential fraud risk.
When you need to create a plan for fraud prevention, consider the specific risks of your business and industry. Look back on previous experiences that show where fraud might occur in your process.
Know how to respond when an emergency happens. Have a policy in place about what to do if serious incidents happen in your organization. Ensure that everybody in the company knows how to deal with fraud cases and has a way to respond when something happens.
- Have a clear procedure for reporting suspected fraud.
- Make sure that all employees report any suspicious behavior quickly.
- Know what kind of information is crucial when it comes to investigating fraud.
- Know where the important information is, and know how to handle it when an investigation starts.
You should also consider different ways of keeping yourself safe from fraud conducted by people unrelated to your business, such as customers or outsiders.
- Use a unique password for each critical website you visit. Never write passwords down on a piece of paper, and change your passwords regularly.
- Do not click on suspicious links or email attachments. If you receive an attachment in the mail from a customer without previous contact, do not open the link or attachment until you’ve checked with the client—Double-check phone numbers on invoices before calling to confirm any orders.
Finally, you should also know how to react if your business is accused of fraud. Ensure you have a plan for how the company will respond when it receives an accusation to keep business operations going as usual. You should be able to recognize the difference between real and false accusations and issue correspondingly appropriate responses.
