Five Tips to manage risk of fraud in SMEs/Start ups

While large organisations are usually target of fraudsters as rewards are better if their attempts are successful but at the same time it is difficult to succeed as large organisations often have resources in place to counter frauds. For fraudsters it makes sense to target smaller organisations and they make up by targeting larger number of such organisations. The reason for this is that small organisations generally do not invest in tools/resources to counter frauds, which makes sense considering cost-benefit equation.

I have documented some tips which do not require much resources but could be very effective to counter risk of fraud for SMEs and startups. Fraud not only causes financial loss but also cause productivity loss (it takes up time of staff which could be otherwise utilised for achieving business objectives) and poses risk to reputation.

1- Fraud Risk Policy - It need not be very elaborate but must cover certain key elements including what is fraud and provide certain examples of that, roles and responsibilities of staff, what is to be done upon suspicion of fraud in terms of reporting, what action to be taken including investigation and reporting of the incident to internal/external stakeholders.

2-List down fraud scenarios by involving staff in the organisation- First step to protect against fraud is to identify what type of fraud scenarios an organisation may be exposed to. Best way to do that is to engage staff across levels. No one knows the process better than people running it. Once fraud risks are identified then work on identifying mitigating measures else be conscious of the risks while running specific processes. This also goes towards creating awareness about frauds in the organisation.

3-Regulatory/Government requirements - Check if there are any specific requirements governing your business segment. for eg. companies in the financial services industry usually have requirements regarding fraud risk management including reporting of incidents to the regulator

4- Expose fraud reporting channels to stakeholders - Frauds are detected through tip-offs from internal as well as external sources so ensure your vendors, customers etc are aware of who to contact if they want to report any wrong doing.

5-Screening - Have screening process in place to check whether staff, customers and vendors being on boarded by you are providing correct information and documents to you. Depending upon resources/requirements choose the suitable screening process, it could be as basic as using certain free services to verify documents and information. This also helps you in knowing your staff, customers and vendors and could be useful to detect any anomalies at the time of on boarding or later.

There are lot of other things which could be done to manage the risk of fraud and above are some of the basics. Feel free to add to above or to reach out to me for any inputs/clarifications