“An ounce of prevention is better than a pound of cure” holds true in today’s ever-changing payment environment. In recent years, technology has been so closely associated with the rise of fraud that its ability to mitigate and detect risk is sometimes overlooked. Many larger corporations have implemented fraud prevention tools making smaller businesses low-hanging-fruit for criminals.
Fortunately, these cost-effective solutions are now easy for small businesses to implement.
Positive payWhile glamorous fraud topics of the day involve wires, automated clearing house, account takeovers and indentification theft, the most fraud-vulnerable instrument is still the paper check. According to a July 2012 Aite Group report, 70 percent of business-to-business payments are still made via check and with advancements in inexpensive desktop publishing software, check fraud is on the rise.
A positive pay system is an automated fraud detection tool offered by the cash management department of most banks. In its simplest form, it is a service that matches the check number and dollar amount of each check presented for payment against a list of checks previously authorized and issued by the company.
When a check is presented that doesn’t have a match, it becomes an exception item. The bank notifies the client of the exception giving them the chance to review the image and elect whether to pay or return the check.
Positive-pay processes helps prevent check altering and forgery and give businesses the opportunity to detect encoding errors before the item clears the account. Positive pay also automates the account reconciliation process and most systems also allow duties to be segregated among users, increasing internal controls and decreasing the opportunity for internal fraud.
Online banking alertsSetting alerts within online banking gives business owners and management timely notification of transaction and balance information.
Alerts can be customized to notify interested parties of incoming and outgoing activity, as well as balance changes. Alerts are a convenience and help mitigate fraud risk. By reviewing activity and taking immediate action, fraud disputes are expedited to decrease the chance of loss.
ACH block also can be set up through a bank to block all ACH debit activity. Filters can be set up allowing only authorized debits from preapproved vendors to post to a company’s account.
Payroll companies, direct deposit and pay cardsAccording to the Association of Certified Fraud Examiners, 39 percent of fraud cases occur in small businesses with fewer than 100 employees. These businesses are at the greatest risk for internal fraud because of the difficulty they have in segregating duties. It is estimated that payroll fraud schemes accounted for nearly 10 percent of the $600 billion lost to internal fraud last year.
While outsourcing payroll doesn’t automatically protect a company from fraud, it does help segregate payroll functions. The business owner is no longer buried in the processing of payroll and can use the extra time to better review payroll reports. Payroll companies have the technology in place to monitor for possible fraud and have the capability to customize reports, making them more effective and easier to review. Payroll providers are also a good resource to help small businesses review internal controls.
Encouraging your employees to receive their pay via direct deposit or a pay card issued by the bank instead of by check saves businesses time and money, and is an effective way to decrease the risk of payroll check fraud.
Partnerships with advisers such as bankers, certified public accountants and payroll providers, that draw on their expertise and utilize the tools they provide, can be the ounce of prevention that keeps a business from needing a pound of cure.
Dana Montgomery is vice president and director of corporate services for Guaranty Bank. She can be reached at dmontgomery@gbankmo.com.[[In-content Ad]]
