‘It won’t happen to us’ – the famous last words of every business without an effective fraud risk management strategy in place. It may seem unbelievable, but many businesses still have this attitude. It is imperative that business owners learn the reality of the situation; fraud can happen to anyone at any time. Unfortunately, because the high-profile incidents most frequently make headlines in recent times, many smaller businesses think that they can remain undetected by fraudsters and unaffected by fraudulent activity. This is simply not the case. In this day and age, it should be evident to all organisations that they are at risk of fraud, regardless of their size, the value of their offerings, or the state of the economy. In fact, while fraud can occur at any time, the risks are heightened at times of economic downturn.
Economic Influences on Fraud
During times of global economic challenges, there are three factors of fraud that are prevalent; pressure, opportunity, and rationale. When the global economy is struggling, businesses are considered victims, but their employees also suffer the same consequences. Individuals may start to feel insecure in their jobs, with many of them becoming unemployed as the crisis continues, as was seen during the Covid-19 pandemic. This introduces the first factor of fraud – pressure – whereby some individuals may start to believe that they need to turn to criminal activity to ensure their personal financial stability. The second factor, opportunity, comes with the rate of change that the economic downturn forces upon organisations, as well as the lack of fraud detection and prevention strategies. When businesses are struggling to stay afloat, some feel the need to change rapidly in order to remain open. They make quick decisions with minimal thought, potentially leaving gaps in their supplier or client onboarding process which leaves them open to risk and provides fraudsters with the opportunities they need. When taking these opportunities, they are often rationalised as a necessity for survival. Regardless of the reasons, the more we see individuals rationalising these crimes, the more chance there is for businesses to be targeted, which is why fraud risk management is essential.
Managing Fraud Risk
Fraud risk management is a procedure that involves identifying, analysing, preventing, and detecting fraud risks. In order to successfully prevent fraud, businesses need to identify their weaknesses and implement tools like DebiCheck, Identity Verification, Bank Account Verification (AVS) and more to effectively manage finances and screen clients. These powerful tools can also be used throughout a business’s internal processes for their fraud detection procedures – a procedure that comes after prevention as a means of identifying fraud that has already entered the business ecosystem. These tools allow business to continue as usual during peak onboarding seasons, times of economic downturn, and more. They offer a safety net for businesses of all sizes to capitalise on.
The Threat to Small Businesses
While many small businesses are under the impression that they are unlikely to be targeted by fraudsters, it has been reported that they are more often than not the victim of these crimes, and are subject to higher average losses each year. This is a detrimental threat to these businesses as the financial damage that they face due to fraudulent activity is often irreparable, forcing them to close, and a lack of preventative measures leaves them fully exposed to these risks. In an economic downturn, it may be assumed that these small businesses would be less likely to adopt the necessary software to mitigate these risks due to the costs. However, this is often the best time to integrate preventative tools into the business system, it protects the business you have already built and considerably reduces your fraud risk in what are already challenging financial times.
If your business has yet to adapt its approach to fraud prevention during the current economic challenges, now is the time. Protect the business you have and mitigate risks with effective fintech software.