Noupe Editorial Team September 25th, 2023

Fraud Risk Management: 9 Techniques to Safeguard Small Businesses

Fraud causes commercial misery for countless businesses. But, as large businesses tend to have more resources to withstand it, small businesses are especially vulnerable. 

This is because the attention of small, and particularly less established, businesses is often consumed with just staying solvent rather than focused on threats. 

But, the good news is that there are steps you can take, yes, even as a small business owner with scarce time and money. Read on to find out how you can deploy fraud risk management without having to spend a fortune.

Image by Anna Tarazevich on Pexels

What is fraud risk management?

Well, this bit’s fairly straightforward. Effective fraud risk management is the practice of:

  • Identifying the likely fraud threats that might come your way.
  • Deploying the means to prevent, confront, and defeat these threats.

That’s it. So, nothing to worry about.

OK, it’s a little more complicated than that, but we’ve broken everything down into the following easy-to-adopt techniques.

9 techniques to safeguard small businesses

There are numerous techniques you can use to effect fraud risk management, but we’ve narrowed them down to the following nine. Others may suit your specific industry, but this will give you a solid place to start from.

Identifying vulnerabilities

Fraud risk management is a kind of risk assessment. And it’s in the identification of threats that risk assessments begin. Here we’ll go through some of the ways that your business can be vulnerable to the threats posed by cybercriminals, scams, and fraud. 


Image by Fox on Pexels

An area thought to be one of the biggest data security risks in most organizations is the staff themselves. In fact, employees are responsible for almost a fifth of all data breaches. 

Why is this? It’s not that your employees are trying to bring your business down. It’s that your employees are human, and one of the specialties of the human race is to make mistakes and forget things.

So, we’re looking here at an inability to use passwords responsibly or spot a scam. It can also be about not being able to keep certain aspects of the company as confidential as they need to be. It’s this kind of indiscretion that can form a very usable fraud attack vector.

Fourth parties

It’s not only your own direct employees you have to consider. It’s also other companies that you have dealings with. If an external body handles your accounts or data, then you’ll be placing your confidential financial details in their hands. 

If your data is handled by external parties, double-check their data security policies and make sure that they don’t allow your data to be handled by any other organizations. 

Modern equipment and practices

Image by luis gomes on Pexels

Threats are always looking for ways to circumvent controls. So, you need to make sure that you’re using the latest gear and techniques to overcome fraud danger. Consider doing a risk assessment of all the solutions you currently use. 

For example, check that you’re using the most up-to-date small business accounting software that is compliant with recent data regulations such as GDPR or the latest cybercrime laws, depending on where you’re based. You should also make sure that your staff is trained on how to handle sensitive data as well as how to spot and deal with any potential data breaches. 

Implementing internal controls & fraud prevention

Fraud risk management is all about tackling fraud before it happens. You want to have a watertight framework that simply doesn’t let fraud in. To do this, you need to set about instituting internal controls across the board. There has to be comprehensiveness and consistency.

As soon as you’ve identified a specific threat, think about what you can do to counter it. That way, you can hope to make that threat disappear before it manifests itself.

So, for instance, take employees who, for whatever reason, don’t update their passwords as often as they should. To tackle this issue, make sure that everybody updates their access credentials every month (and double it up with multi-factor authentication). Then, apply this from the moment an employee starts with you, and you’ll soon tie off that fraud threat route.

Employee training and awareness programs

You can’t be everywhere at all times. Your employees are your eyes and ears when you’re busy elsewhere. This means that they need to be alert to the dangers of fraud wherever they might appear.

To do this effectively, you should train them in what to look out for. Whether it’s unusual customer activity or a suspicious email link, your employees should be aware of the various dangers and how to avoid them. 

And here’s the important bit—have regular training updates to reinforce the message. Update with any recent developments. In time, your corporate culture can grow around effective fraud risk management processes.

It might be worth investing in a dark web scan service. This can trawl where you don’t want to be going to see if your business has cropped up there as a potential fraud target.

Regular monitoring and detection systems

Image by Pixabay on Pexels

Security trends may come and go, but vigilance never goes out of fashion. Check your finances frequently. Frauds that go undetected tend to repeat and can be ongoing for years, causing tremendous financial damage to a small business.

If you can spot an anomaly early, you’re in a better position to counter it. Similar to employee training, you want to have as many systems in place that regularly check for anomalies. 

You should already be using spyware and other malware detection software to make sure your site remains secure. But, you should also consider looking into more industry-specific tools that can perform things such as device fingerprinting, customer authentication, and AI-based pattern detection. 

Creating protocols for incident response and reporting

Two elements are important here: speed and confidentiality.

If an employee suspects fraud, they need to be able to follow the prescribed action path with minimal delay. This means that there has to be a prescribed action path in the first place and that everybody has to know about it. To whom do they report suspected fraud? What happens if that route's blocked for some reason?

If a customer is suspected of fraudulent activity, there has to be a process whereby the whistle is blown while not exposing the customer’s details any more than necessary. After all, we’re innocent until proven guilty. 

Also, there should be an anonymous reporting system in place. This cuts the risk of the whistleblower suffering consequential ill-treatment.

Vendor and supplier evaluation

Image by John T on Unsplash

This comes back to the fourth-party vulnerability we mentioned earlier. It’s vital that every partner organization you deal with has the same fraud risk management processes as you do. They will have access to some of your company’s confidential details, so be mindful of this.

Use companies that have reputable profiles and good reviews. Have regular meetings so that everybody is clear on what standards you expect.

Strengthening data security and access

Remember when we talked about obsolete equipment and techniques? It’s crucial that you re-visit your fraud risk management strategies on a frequent basis to see that what worked once is still working well. Just like anything else, security measures grow old and ineffective over time, so you need to be in there and replace them before they do.

Look at introducing new practices that seem to deliver a good security result, such as using digital signatures or multiple-factor authentication (MFA). 

Working with law enforcement and authorities

Transparency is what’s required as far as law enforcement is concerned. Everyday confidentiality demands opacity, yes. But you have to turn that on its head so that those with a legitimate interest can access all areas of your business.

You also need to remain aware of any developments in the statutory framework related to security. In this way, you can protect your business and your customers from the latest fraudulent practices.

Continuous assessment and improvements

The best systems today are rarely the best systems tomorrow. Improvements are always possible. Fraudsters continuously improve their game, so you need to improve your fraud risk management on an ongoing basis.

Keep up-to-date with the latest fraud trends and legislation, as this will make it easier to check whether your current fraud prevention processes are still robust. You should also make sure your fraud detection software is up to date and covering your needs. A good fraud detection system should be able to automatically detect new vulnerabilities and alert you to them.

On top of this, risk management also relies on good organization. Use project management and ERP software to keep track of the processes you have in place, remind you when a review is due, and store resources, such as training documents and information. 

But, bear in mind, as a fourth-party software, you should also check the project management or  ERP security features don’t leave your details vulnerable. For example, you want to make sure that it has features such as automatic lockout after periods of inactivity and that it adheres to global security compliance programs, such as ISO27001 and SOC2.

Finally, although internal audits are valuable, you may, from time to time, benefit from an external party doing an assessment of your fraud risk assessment. They may spot things that elude you or that you tend to de-emphasize for whatever reason.

Effective fraud risk management

It's important that you don't waste time in implementing a robust fraud risk management framework. And as in a lot of crucial business practices, it's equally important that you get everybody's buy-in. Otherwise, it can feel like shouting in the wilderness.

The internal controls of your fraud risk management program will only be as effective as your staff enables them to be. So you have to make sure everybody understands how important all this is to the business. This is how you reduce the risk of fraud to as close to zero as possible, or at least to an acceptable level.

The best fraud risk management can all but seal off your business from the worst that fraudsters can throw at it.

Featured image by Artem Podrez on Pexels

Noupe Editorial Team

The jungle is alive: Be it a collaboration between two or more authors or an article by an author not contributing regularly. In these cases you find the Noupe Editorial Team as the ones who made it. Guest authors get their own little bio boxes below the article, so watch out for these.

Leave a Reply

Your email address will not be published. Required fields are marked *