5 Commercial Fraud Prevention Tips

This March marks the 13th anniversary of Fraud Prevention Month. While the annual program focuses on protecting the consumer, businesses should take advantage of the time to better educate themselves on commercial fraud. A recent poll of Canadian businesses found that half of them know or suspect that they have been hit by fraud in past year.

There are numerous ways that business fraud can occur in a transaction. It can occur from business to consumer or consumer to business. It can come from internal staff or external threats. But the one familiar element is that the party committing the fraud has acted dishonestly. Business fraud is more common in some industries than others. Banking and financial services, government, manufacturing, healthcare, education, and the retail sector are all industries that struggle with fraud. However, no commercial enterprise, big or small, is safe.

As a business insurance and risk management expert, Park Insurance is here to provide you with some helpful tips that could save you from the impending threat of commercial fraud.

5 Fraud Prevention Tips You Need to Apply to Your Business Today

1. Preparing for Commercial Cyber-fraud

It should come as no surprise that cybercrime headlines this list of commercial fraud prevention tips. But the fact that 50% of Canadian executives admit that their businesses were hacked last year is alarming. Credit card fraud, identity theft, account takeover and/or hijacking attempts are becoming so common that businesses are hiring full-time staff and/or consultants to monitor cyber security. Cyber-fraud occurs from internal (employees stealing corporate information) and external culprits alike and they are becoming more sophisticated with each passing month. Improved staff awareness, real-time software updates, enhanced backup protocol, and encrypted communications will help stave off sophisticated cyber-fraudsters. Follow these six tips to protecting your business from cyberattacks.

2. Pre-Employment Screening

Internal fraud is one of the most common forms of business fraud and is certainly one of the most impactful. Not only can it go undetected and occur over a long period of time, devastating your business financially, it can ruin your corporate culture. Trust is immediately lost. From this point forward, institute an improved pre-employment screening program that includes intensive backgrounds checks and more thorough reference checks. If fraud is a significant concern (you operate in one of the higher risk industries mentioned in the introduction) consider using a professional service that specializes in pre-employment screening. Some human resource recruiters offer specialized screening.

3. Improved Internal Accounting (w/Redundancy)

You may think that placing one person in charge of accounting, including the processing of payments and invoices, making bank deposits, handling petty cash and managing bank statements is smart because it provides a single point of responsibility. It’s not. It opens you up to internal fraud, should that employee/manager seek to do your business harm. Even if the individual can be trusted, they are at risk of being compromised. If they hold all of the chips, your business can be hit and decimated in one shot.

Instead, spread and/or rotate these duties amongst qualified staff. In addition, create redundancy when it comes to the accounting of all financials. This will allow you, for instance, to check duplicates of a month’s invoices and statements to ensure that the numbers match. Have separate parties check financial statements too, for added caution.

All of these improved internal accounting policies should be compiled and posted for all to see. If you do have an internal threat working within the company, they will be less likely to take harmful action if they know that these redundant checks and balances are in place.

4. Encourage Whistleblowing

Whistleblowing may seem like a dirty word when it comes to fostering a trusting corporate culture, but in the end your staff should see that it is nothing to worry about – if there is nothing to worry about. Institute an official fraud reporting protocol for staff, vendors and even customers/clients to anonymously report suspected fraudulent activities. It is essential that everyone involved receives a clear document that explains what constitutes fraud. It must also state that the process should never be used to air grievances, which can happen when there is friction between employees. Reports should be backed by facts and evidence. Lastly, it must be made clear to employees, vendors, and customers/clients that all reports are regarded as confidential without reprisal.

5. Secure Insurance to Hedge Business Risk of Fraud

For all of your efforts, fraud can still occur. You want to protect your business from this, hedging the risk of all damages that can come in the form of financial loss, liability, and innumerable other concerns. For a comprehensive and unbiased accounting of your existing policy, secure the services of an independent insurance broker with expertise in all forms of commercial crime and commercial liability insurance. Contact Park Insurance before your business joins the approximate 50% of Canadian businesses that have been hit by fraud.

Additional resources for business accounting tips are available here

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Challenges and Opportunities

The Paypers has invited various thought leaders to share their views on 2017 predictions regarding security threats and fraud management solutions

Monica Eaton-Cardone, Global Risk Technologies: Criminal fraud, in the form of unauthorised transactions, will remain an ever-present threat

Criminal fraud, in the form of unauthorised transactions, will remain an ever-present threat. Fortunately, though, technologies have made it easier to mitigate this type of fraud . The threat will continue, but it is a manageable concern. Conversely, another type of fraud continues to go unmitigated. Friendly fraud, which is unwarranted or illegitimate chargebacks, is growing at an alarming rate—as much as 50% annually in certain regions and industries. To date, this threat has remained relatively unmitigated.

Fortunately, we are identifying new techniques that are proven effective at preventing illegitimate chargebacks and recovering unnecessary revenue loss. First, merchants need to identify the cause of each chargeback. Identifying the source of a problem is the only way to effectively mitigate it—otherwise, solutions merely address the symptoms. Technologies like Chargebacks911’s Intelligent Source Detection make this possible. Second, once merchants have identified the chargeback sources, they need to dispute known cases of friendly fraud. Disputing illegitimate chargebacks effectively challenges faulty consumer behaviours.

Lastly, the industry needs standardisation and compliance. Programmes piloted by schemes to address these concerns are apt to provide good feedback. Without more attention on identifying the underlying source of this growing problem, consumer expectations will threaten sustainable growth industry-wide.

Jason Tan, Sift Science: Stolen identities or accounts are attractive to fraudsters because they offer a richer form of data than simple payment details

While companies are making strides in fighting payment fraud , there are still some worrying gaps when it comes to combating the new frontier of fraud, account takeover (ATO). Nearly half (48%) of respondents to the Sift Science Fraud-Fighting Trends 2017 survey reported that they saw a rise in ATO last year. And with large-scale data breaches showing no sign of slowing down, there should be plenty of fodder floating around on the dark web for criminals to use in their attacks.

Stolen identities or accounts are attractive to fraudsters because they offer a richer form of data than simple payment details. Non-payment data like login information, birth dates, social security numbers, and security questions can be used to create more accounts, make purchases, or even sign up for new credit cards.

From the standpoint of a merchant or financial institution, ATO is particularly concerning since these fraudsters may take the guise of some of your most trusted customers. However, machine learning and behavioral analysis can help unearth the subtle nuances that separate a real, valuable user from an imposter – so you can stay ahead of the game.

Luke Reynolds, Featurespace: It’s time to embrace machine learning to identify new fraud attacks as they occur while protecting your customers and revenue

Do not treat your customers like criminals. That is the big differentiator for banks and payment processors that want to get ahead. Criminals are advancing faster than existing fraud systems can cope with. Machine learning and advanced anomaly detection are the answer to preventing new fraud attacks, while accepting ‘good’ business from genuine customers.

One type of fraud attack increasing within financial services is Authorisation Stream attacks, where criminals manipulate the standard authorisation message, impacting payment processors upstream of where fraud systems usually spot an attack at transaction stage.

Social Engineering attacks on the elderly and vulnerable are also an increasing threat – where genuine banking customers are manipulated via phone by a criminal impersonating the bank.

Financial Services organisations are typically already capturing data needed to protect customers from these attacks. However, to do so, organisations need to be identifying anomalies accurately and efficiently at the level of accounts, merchants, cardholders and locations.

The good news? Machine learning systems – which use adaptive behavioural analytics to monitor individuals in real-time and detect anomalies – enable organisations to understand behaviour across their customer base. It’s time to embrace machine learning to identify new fraud attacks as they occur, while protecting your customers and revenue.

John Karantzis, iSignthis: The convergence of 4AMLD and PSD2 can lead to proactive solutions that mitigate fraud

Are companies ready for even more sophisticated fraud attacks? Unfortunately, it appears not, as card fraud has continued to rise around the world, with fraudsters becoming more sophisticated and harder to catch than ever.

In 2015, we saw more than USD 16.31 bln lost to card fraud globally, with a significant proportion of this being within SEPA. Whilst more and more predictive or risk-based solutions are released to the market each year to protect businesses from fraud, the fraud statistics are not decreasing.

Clearly, relying on risk-based assessment or predictive systems such as ReD, Kount, Cybersource, are proving to be less and less effective, and often lead to false positives or false negatives.

In response, regulators have introduced the Payment Services Directive 2 (PSD2), which incorporates a requirement for ‘Strong Customer Authentication’ (SCA) for every payment transaction. SCA however, relies upon Knowing Your Customer, which for transactions originating outside of SEPA can be extremely challenging. The strengthening of the transparency rules regarding identity has been introduced to tackle terrorism financing, tax avoidance and money laundering, which in turn will also address the adjacent issue of card not present (CNP) fraud. The convergence of 4AMLD and PSD2 can lead to proactive solutions that mitigate fraud, which in turn increases merchant’s confidence to pursue exporting and revenues from outside the SEPA.

The iSignthis Paydentity solution adds a layer of proactive defence for merchants against sophisticated CNP attacks, in addition to providing a basis for compliance for the 4AMLD and PSD2.

Additional resources for business accounting tips are available here


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The Internal Revenue Service is cautioning taxpayers to be on the lookout for unscrupulous return preparers, one of the most common “Dirty Dozen” tax scams seen during tax season.

The vast majority of tax professionals provide honest, high-quality service. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud , identity theft and other scams that hurt taxpayers. That's why unscrupulous preparers who prey on unsuspecting taxpayers with outlandish promises of overly large refunds make the Dirty Dozen list every year.

"Choose your tax return preparer carefully because you entrust them with your private financial information that needs to be protected," said IRS Commissioner John Koskinen. "Most preparers provide high-quality service but we run across cases each year where unscrupulous preparers steal from their clients and misfile their taxes."

Return preparers are a vital part of the U.S. tax system. About 60 percent of taxpayers use tax professionals to prepare their returns.

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

Choosing Return Preparers Carefully

It is important to choose carefully when hiring an individual or firm to prepare a tax return. Well-intentioned taxpayers can be misled by preparers who don’t understand taxes or who mislead people into taking credits or deductions they aren’t entitled to in order to increase their fee. Every year, these types of tax preparers face everything from penalties to jail time for defrauding their clients.

Here are a few tips when choosing a tax preparer:

  • Ask if the preparer has an IRS Preparer Tax Identification Number (PTIN). Paid tax return preparers are required to register with the IRS, have a PTIN and include it on tax returns.
  • Inquire whether the tax return preparer has a professional credential (enrolled agent, certified public accountant or attorney), belongs to a professional organization or attends continuing education classes. A number of tax law changes can be complex. A competent tax professional needs to be up-to-date in these matters. Tax return preparers aren’t required to have a professional credential. The IRS website has more information regarding the national tax professional organizations.
  • Check the preparer’s qualifications. Use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This tool can help locate a tax return preparer with the preferred qualifications
  • The Directory is a searchable and sortable listing of certain preparers registered with the IRS. It includes the name, city, state and zip code of:
  • o Attorneys

    o CPAs

    o Enrolled Agents

    o Enrolled Retirement Plan Agents

    o Enrolled Actuaries

    o Annual Filing Season Program participants

  • Check the preparer’s history. Ask the Better Business Bureau about the preparer. Check for disciplinary actions and the license status for credentialed preparers. For CPAs, check with the State Board of Accountancy. For attorneys, check with the State Bar Association. For Enrolled Agents, go to IRS.gov and search for “verify enrolled agent status” or check the Directory.
  • Ask about service fees. Avoid preparers who base fees on a percentage of their client’s refund or boast bigger refunds than their competition. Don’t give your tax documents, SSNs, and other information to a preparer when only inquiring about their services and fees. Unfortunately, some preparers have improperly filed returns without the taxpayer’s permission once the records were obtained.
  • Ask to e-file your return. Make sure your preparer offers IRS e-file. Paid preparers who do taxes for more than 10 clients generally must file electronically. The IRS has processed more than 1.5 billion e-filed tax returns. It’s the safest and most accurate way to file a return.
  • Provide records and receipts. Good preparers will ask to see your records and receipts. They’ll ask questions to determine your total income, deductions, tax credits and other items. Do not rely on a preparer who is willing to e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules.
  • Make sure the preparer is available. In the event questions come up about your tax return, you may need to contact your preparer after the return is filed. Avoid fly-by-night preparers.
  • Understand who can represent you. Attorneys, CPAs, and enrolled agents can represent any client before the IRS in any situation. Annual Filing Season Program participants may represent you in limited situations if they prepared and signed your return. However, non-credentialed preparers who do not participate in the Annual Filing Season Program may only represent clients before the IRS on returns they prepared and signed on or before Dec. 31, 2015.
  • Never sign a blank return. Don’t use a tax preparer that asks you to sign an incomplete or blank tax form.
  • Review your return before signing. Before you sign your tax return, review it and ask questions if something is not clear. Make sure you’re comfortable with the accuracy of the return before you sign it and that your refund goes directly to you – not into the preparer’s bank account. Reviewing the routing and bank account number on the completed return is always a good idea.
  • Report abusive tax preparers to the IRS. You can report abusive tax return preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. You can get these forms on IRS.gov.
  • To find other tips about choosing a preparer, understanding the differences in credentials and qualifications, researching the IRS preparer directory, and learning how to submit a complaint regarding a tax return preparer.

    Taxpayers are legally responsible for what is on their tax return even if someone else prepares it.


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