Small business fraud only matter of time

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By Robin Bass

It’s not a matter of if, but when a small business will be affected by theft. Whether it is from scams, counterfeiters or even employees, experts speaking at a recent Chamber of Commerce meeting provided advice on how business owners can protect themselves.

“There’s more and more fraud happening every day,” said Pam Mason, vice president of operations at the Peoples Bank. “It’s unbelievable how many fraudulent cashier’s checks we see in this small community.”

One typical way thieves swindle businesses is by paying for merchandise with phony certified or cashier’s checks. Other scams involve new customers being granted instant credit, providing upfront payment for services that are never provided and the infamous Nigerian letter scam. This fraudulent transaction involves a legitimate company receiving a check for more than the merchandise purchased. The thieves then ask that the extra amount be wired back to them. The problem occurs when the business owner discovers the original check was no good.

When a business is scammed, the bank will not be the one held liable, said Mason. She provided the following tips on fraud prevention:

• Research companies that apply for credit and check references

• Get a physical address, not just a post office box

• Be cautious dealing with companies or individuals outside the U.S.

• Consider purchasing a check verification system

• Install virus or malware protection

• Do not give out bank account or credit card information unless certain you are dealing with a reputable company or person

• Be cautious of unsolicited e-mail offers

Mason said that employees should also be educated about scams and the types of fraud on the Internet that could compromise a company’s computer records. In particular, employees should be advised not to open any e-mails from individuals or companies they are not familiar with. Key logging programs or viruses that can destroy computers could be unknowingly downloaded simply by opening an unknown e-mail.

“This is what happened in Bullitt County,” said Mason, referring to cyber criminals stealing over $400,000 from the county’s government.

Not all sophisticated thieves use computers and cashier’s checks, some use plain old money – fake bills made to look exactly like the original. One of the newest trends in counterfeiting is bleaching older, low denomination bills and reprinting them into hundreds. Basically any one with a four-color printer can mimic the look of a Ben Franklin, but there are still ways businesses can spot a fake, said an agent with the U.S. Secret Service. The Louisville field office agent asked that his name be withheld.

“This process is becoming a lot more widespread,” said the agent. “And with Christmas coming, you will probably see an influx of counterfeit bills.”

To spot a fake, small businesses will need more than just a counterfeit marker which detects that the bill is made of the proper paper. With the bleaching technique, cashiers will need to look more closely at the security thread to make sure it matches the face of the bill. And while the bleaching technique may make Abraham Lincoln portrait disappear, his watermark will remain. Hold a bill up to the light. If the portrait is of Franklin and the watermark is Lincoln, it’s a fake.

The agent suggested businesses use a ultra-violet light, since security threads glow different colors for different bills. What ever is done, don’t trust the marker, said the agent.

“If you take a counterfeit bill, you are stuck with it. Don’t try to pass it off to someone else or you could be charged with CPFI (criminal possession of a forged instrument). Turn it over to the police,” said the agent.

Outsiders are not the only ones business owners need to be on the look out for. Alarming statistics reveal that 15 percent of employees are guaranteed to steal and a whopping 70 percent will resort to thievery when presented the opportunity or faced with a personal, financial crisis. The remaining 15 percent will never steal from their employer, said Tom Swinney of Citizens Union Bank.

“Our bank has seen three small businesses affected by employee theft and all three were by bookkeepers,” said Swinney.

He cautioned small business owners trusting one person under their employment having control over the company’s checks, bank statements and invoices.

“In none of these did the owners look at the bank statements until the checks came back,” said Swinney.

Common methods of pilfering money from an employer is by writing fraudulent checks to themselves or family members or creating a false company to filter checks through.

Swinney recommended business owners always perform background checks through the Kentucky State Police on their employees or potential hires and be cautious hiring anyone with a history of theft or drug charges.

Other preventative measures include:

• Establish a zero-tolerance policy. Studies show that employees are less likely to steal if they believe they will be caught.

• Run irregularly-scheduled audits or have a third party perform an annual audit.

• Make sure checks, purchase orders and invoices are numbered consecutively and check for missing documents.

• Use a “for deposit only” stamp on all incoming checks.

• Never sign a blank check and sign payroll checks personally, not with a stamp.

• Get an insurance policy for theft.

• Be alert when an employee appears disgruntled, stressed or expresses financial difficulties at home.