Renowned companies falling victim to scams and fraud is something we all have heard in the news at some point in our lives. But have you ever thought about the factors involved that lead to such an incident?
Of course, the primary factor is a weak security system. Fortunately, companies have found more advanced ways to protect their data, money, and ideas from fraudulent activities in the modern era. Still, some businesses fail to protect themselves completely.
Companies may overlook a few fraud risk factors, resulting in a significant loss. This article will discuss the common fraud risk factors and their effects on the business.
A company's success depends on the right collaborations and a smart team of employees. But unfortunately, sometimes, these partnerships and employees can also become the reason for a company's downfall.
According to the 2020 Global Fraud Study published by the Association of Certified Fraud Examiners' (ACFE), companies lose around 5% of their revenue each year due to fraudulent activities. Most of these frauds are caused by weak internal controls and a lack of supervision.
Several external factors pose a risk to the company's security as well. For example, hacking is one of the major problems businesses face in the modern age. Research shows that a hacker attacks an unprotected computer every 39 seconds.
It puts the company's sensitive data at risk, costing them at least $3.92 million for each data breach. Not only that, but it also poses a major threat to the personal data of customers collected by companies to provide them with a more customized experience.
These frauds can cause companies significant losses in terms of money. For example, ACFE shared in their 2018 Global Fraud Study that small businesses with less than 100 employees are at a greater risk of fraud than large corporations. They can lose up to $200,000 each time after a fraudulent activity which is two times more than what large businesses may lose.
There can be a long list of factors involved that increase a company's vulnerability to falling victim to fraud. However, here are the most common factors that you can look out for:
Constant checks and balances are important to keep shady employees and activities at bay. Therefore, having a team designated to control security and keep a check on all the activities taking place at work is key.
The lack of checks and balances gives way to internal fraud in companies. Statistics show that around 75% of employees have confessed to stealing something from their office at least once. While 64% of employees frequently steal from small businesses, making them the most vulnerable to fraud. While these high statistics for employee theft don’t necessarily correlate with sensitive data fraud or theft, they are still an alarming number of people that may be willing to compromise a moral code for some level of pay out.
Weak relationships of employees with their company can also result in fraud. Other than that, weak partnerships can also be the main reason for losing a considerable amount of money or data to fraud. Employees and vendors can also work together for their financial interest resulting in a loss for the company.
There should be a designated team lead for each project and partnership who is appropriately trained to follow the security processes to avoid this problem. Managers should also have firm control over the employees to prevent such actions.
Companies often hire individuals without a proper screening of their backgrounds. It usually happens among small businesses with fewer means to run such background checks on their employees or vendors. They can lose a massive sum of money or data due to this.
Even if the employees do not engage in colossal fraud, they can waste some business resources. One bad hire can cost up to $15,000 on average to a company. Therefore, it is essential to run proper screening on an employer's background and capabilities before welcoming them into the office.
Handing power to an individual, especially in terms of money, can result in monetary fraud. According to ACFE, 35% of fraud is committed by people in managerial positions. It shows the importance of hierarchical checks and balances in the company.
Giving complete authority to one or a group of few people can be the reason for the downfall of a company. Therefore, an entire group of compliance teams should be trained to follow proper security rules to prevent fraud.
There is a common misconception that fraud only includes the theft of money. However, accounting is not the only department affected by fraud. There are different ways that your company can lose its value and eventually face a downfall.
For example, the theft of data is also a major loss. This is a type of fraud that is less often discussed, but can open the company up to a world of risk that is extremely compromising. In order to protect from data fraud, be sure to have adequate data security measures in place, in addition to to properly training any and all employees who have access to this information.
Companies can lose their valuable data, ideas, and money to fraudulent activities. Unfortunately, despite increasing awareness, such activities continue to happen each year. It not only affects the owners of the business but also the employees working in the organization.
Therefore, using fraud protection software and consulting with data protection agencies like Accountable HQ is ideal for your company's best interest. With the right strategies, careful audits, and complete data protection, your company can thrive in no time.
"Accountable allowed us to quickly establish Core Compliance with HIPAA as well as a firm foundation for our Security Program." - Michael H.
