Updated: Oct 5, 2020
Not a day goes by where we don’t turn on the news to find another reputable large business or corporation falling victim to fraud. In a recent report issued by Thompson Reuters, nearly 47% of the large global companies have experienced some form of fraud in the past year, estimating a total loss of $1.45 trillion worldwide. While these global giants have assurances in place to protect themselves from such staggering losses, small businesses are not so fortunate. In most cases, small businesses do not have the resources to withstand money laundering, theft or other financial crimes. In fact, small businesses reported nearly twice as many fraud attempts than their larger counterparts.
Why Small Businesses Are More Likely to be Victims of Fraud
So why is this the case? Why do small businesses find them susceptible to fraud at nearly twice the rate? Quite simply, weak internal controls and an inefficient segregation of duties make small businesses a prime target. And while hiring more employees to properly combat both would seem like the easy solution, the reality is staffing resources are often limited and costly. So what can small businesses do to effectively prevent and detect fraud without breaking the bank? Technology may be the answer.
Protect Your Business Using Artificial Intelligence
From process automation to fraud prevention, artificial intelligence (AI) can be a valuable, protective tool for small businesses. Take Bill.com for instance. Applications like Bill.com streamline the review and payment process of invoices by segregating cash disbursement functions amongst the appropriate employees, using AI to ensure accurate data entry and completing the actual cash disbursement function through an independent third party. In addition, Bill.com uses a feature called Positive Pay, which is a service that cross-references remitted checks to ensure no manipulation has occurred. At the same time, an Automated Clearing House (ACH) filter is an automated tool that screens incoming ACH transactions for signs of fraudulent activity.
Furthermore, Bill.com can also streamline the cash receipt cycle to allow small businesses to send invoices directly to customers via email, thereby allowing them to pay the invoices online via ACH, PayPal or credit card. This feature has been proven to improve collection times and most importantly, it completes the recording and deposit of the cash receipt through an independent third party. By relying more on technology rather than human data entry small businesses are in a better position to reduce their exposure to fraud whether due to human error or theft.
In addition, cloud based accounting platforms such as QuickBooks and Sage Intacct, allow you to restrict user access, meaning you can limit the ability of employees to access parts of the accounting system that do not match with their job responsibilities. Additionally, both of these platforms utilize AI to allow business owners to obtain real time financial data allowing them to align financial results with operational metrics and ratios. Metrics and ratios that can be used monthly or even daily to track performance and allow owners to identify and audit discrepancies in a timely fashion, thus strengthening the review process within an internal control structure.
The benefits do not stop there either. When you utilize a cloud-based platform, every click of the mouse is tracked in an audit log built into the platform. All moves are recorded, once again improving the overall internal control structure of the small business.
Another cost-effective application that protects your business from activity is Gusto, which allows small businesses to automate and streamline the process around payroll while strengthening controls to prevent fraud associated with the payroll cycle. Gusto segregates the duties related to the payroll cycle and prevents employees form circumventing the controls to commit timesheet or pay rate fraud.
Preventing fraud within your organization is a big undertaking. Take the time to truly understand the AI available to you and how it may help your organization. With some strategic systems and controls in place, you can make it much more difficult for the fraudsters to take advantage of your business.