Opinion: 4 strategies to protect your business from fraudulent activities

Lacy Martin

As digital transformation accelerates, businesses have renewed their focus on security, stability and fraud mitigation. That’s with good cause: The rapid movement of large amounts of money in today’s digital era provides ample opportunity for fraudsters to exploit any loopholes they can find. This is further compounded by the continuous technological changes within corporations, which inadvertently open more avenues for these criminals.

If you want to proactively pay attention to these security-related matters, here are four strategies to help protect businesses from falling victim to fraudulent activities.

1. Educate employees on how to prevent fraud in the workplace. It is crucial to educate all employees, particularly those with access to the company’s payment systems, about how to avoid fraud traps. As fraud becomes increasingly sophisticated, businesses should elevate their vigilance levels and train employees to be cautious of potential scams.

Business email compromise continues to be a significant source of fraud, with phishing emails growing more difficult to detect. For example, such emails may appear to be genuine messages from an established vendor seeking to update their contact information. A seemingly harmless phone number change can be the first domino to fall in a chain that leads to a legitimate payment being routed to a scammer.

Regular training and communication should include a wide range of topics:

• Best practices for internet and mobile device security.
• How to spot potential phishing emails.
• Policies and procedures for issuing and receiving payments.

The good news is that education doesn’t have to cost anything. It’s something that any business, large or small, can employ.

2. Monitor for fraudulent payments. Mail theft, check washing and business identity theft are on the rise. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network has made note that despite a decline in the use of checks overall, mail theft for the purpose of check fraud has continued to spike since the pandemic.

Along with mail theft comes increased business identity theft. For example, a bad actor can steal a check that is payable to ABC Co., and then may open an account in the name of ABC Corp. and try to cash or deposit a check.

Businesses should work with their banks to add extra layers of monitoring. For example, banks now offer services that allow businesses to provide details about the checks they cut so the bank can cross-verify payments to ensure funds go to the intended recipient. Similar services are available related to automated clearing house payments.

3. Update internal systems to mitigate risks. Moving from manual systems to digital accounts payable and receivable functions is another way businesses can mitigate fraud risks. These systems make it possible to track transactions in real time and provide a clear audit trail, so it’s easier to spot any irregularities or suspicious activities promptly. They also allow businesses to implement more robust user permissions, such as two-factor authentications and personal identification numbers, which help ensure only authorized employees can access banking and other payment information.

Requiring dual approval on transactions is another effective internal control. Doing so not only prevents a lone bad actor within a company from committing fraud, it also provides an additional layer of protection from scams that attempt to trick an employee into issuing an improper payment. I recommend businesses separate the tasks of originating transactions and verifying or reconciling payments. Bank systems also can require one person to authorize the creation of an electronic payment and a second person to authorize the release of the payment.

4. Respond quickly. If a business falls victim to fraud, there’s no reason for employees or leaders to feel embarrassed. Remember: Fraud is common and sophisticated. And don’t think it can’t happen to your organization.

If it does occur, businesses should reach out to their bank immediately for help addressing the issue. Banks can help protect accounts from further fraudulent activity, assist in correcting any improper payments and provide support in contacting appropriate authorities. They also can provide additional support in mitigating further fraud risk.

Fraud mitigation is a moving target, making it critical for businesses to stay connected to their bank and other business partners to remain current.

Staying ahead of fraudulent actors is critical as they can often be as structured and coordinated as large companies. It’s not the cliche of somebody sitting in their basement. Fraud today is much more advanced.

Accounts payable and receivable departments are one of the most vulnerable areas of fraud for any business. The good news is you can reduce human errors or interventions, detect suspicious activities, shield your business from cybercrime and identify reconciliation discrepancies.

Lacy Martin is a senior vice president and commercial banking team leader for Commerce Bank in Springfield. She can be reached at lacy.martin@commercebank.com.