What to do if you discover fraud in your business - a step by step guide to helping you through

Discovering fraud can be a devastating experience for small business owners. Whether it's an external scam or internal theft, the impact on finances and trust can be significant. Here's what you should do if you find yourself in this unfortunate situation:

Immediate Steps

1. Stop the bleeding: Immediately halt any ongoing fraudulent activities. If it's an external fraud, freeze payments and closed compromised accounts where necessary. For internal fraud, restrict the employee's access to financial systems and sensitive information.
2. Preserve evidence: Document everything related to the fraud. Save emails, financial records, and any other relevant documents. Do not alter or delete any potential evidence, as this could hinder the investigation.
3. Report the crime: Contact your local police force to report the fraud. In the UK, you can also report to Action Fraud, the national fraud and cybercrime reporting centre, by calling 0300 123 2040 or visiting their website.
4. Inform relevant parties: Notify your bank, insurance company, and legal counsel about the situation. They can provide guidance and may help in recovering losses.

Investigation and Recovery

1. Internal audit: Conduct a thorough internal audit to determine the full extent of the fraud and identify any weaknesses in your systems.
2. Engage professionals: Consider hiring a forensic accountant or fraud investigator to assist with the investigation and provide expert testimony if needed.
3. Review and strengthen controls: Identify how the fraud occurred and implement stronger internal controls to prevent future incidents.

Legal Considerations

1. Civil action: Consult with your legal counsel about the possibility of pursuing civil action against the perpetrator to recover losses.
2. Employee rights: If dealing with internal fraud, ensure you follow proper employment law procedures when taking action against the employee.

Recovery Prospects

Unfortunately, the likelihood of fully recovering stolen funds is often low. According to the Association of Certified Fraud Examiners (ACFE), only about 14% of fraud victims recover all their losses.

Best Practices for Prevention

1. Implement checks and balances: Establish a system of dual control for financial transactions and regular audits.
2. Employee education: Train staff on fraud awareness and establish clear reporting procedures for suspicious activities.
3. Vendor verification: Implement a robust system for verifying new vendors and changes to existing vendor information.
4. Insurance: Consider obtaining fidelity insurance to protect against employee theft and cyber insurance for external fraud risks.
5. Digital fraud monitoring: Implement automated fraud detection software to continuously monitor for suspicious activities.

Meysey: A Solution for SME Fraud Protection

To significantly reduce the risk of future fraud, small business owners should consider implementing digital fraud monitoring software. Meysey offers an excellent solution tailored specifically for SMEs.Meysey provides automated governance across your financial eco-system, helping to reduce fraud and improve business risk resilience. OAI-powered platform performs hundreds of checks, including:

• Background checks on suppliers and customers
• Validation of invoices and payment requests
• Auditing of payroll and employee details
• Expense validation
• Financial trend analysis

Tloud-based tool is designed with non-technical users in mind and can be set up in minutes without any software downloads. It offers seamless integration with popular accounting software like Xero, making it easy to adopt without disrupting existing workflows

In conclusion, while discovering fraud can be a challenging experience, taking swift and appropriate action can mitigate damages and aid in recovery. By following the steps outlined above and implementing robust fraud prevention measures, including digital monitoring solutions like Meysey, small business owners can better protect themselves against future incidents and focus on growing their businesses with confidence.