Businesses today have to worry about a lot more dangers than before. Of course, the nature of entrepreneurship carries a risk itself, but operating online has unique threats that need to be addressed.
Besides the risks themselves, companies have to adhere to specific regulations related to data, security, and anti-money laundering. It’s often the case that business owners misunderstand the concept of fraud prevention, bringing them into problematic situations.
In this article, we’ve covered the main aspects of fraud that are often misunderstood or avoided. We’ve also made a list of some of the most helpful prevention methods that business owners can implement.
Fraud prevention explained
Individuals who aren’t specialized in fraud and cybersecurity often mistake prevention for a one-dimensional task. They think that good software or human training can eliminate the risk.
Elements of good fraud prevention practices
There are three main elements of good fraud prevention practices. These are people, processes, and technology.
People need to be aware of all the potential threats the business is exposed to. They must be able to recognize if the email they’ve received is fraudulent, and when a customer’s behavior is out of the ordinary. Those who specialize in compliance and cybersecurity processes should be knowledgeable about the latest industry trends.
The next aspect is the documentation and filing process. Companies must have a proper hierarchy, segregation of duties, and conduct routine audits. If this aspect is covered, then the whole situation will have a much more positive outcome, even if fraud is committed.
Last but certainly not least is technology. This is a crucial aspect for companies that conduct the majority of their operations online. They’re going to be exposed to a lot more threats than companies that simply have a website but operate outside of the digital sphere.
In this category, we can put anti-virus software, identity and access tools, and detection platforms that monitor transactions in real time, flag anomalies, and trace behavior patterns that may indicate fraudulent activity.
These three aspects of fraud prevention are crucial to understand, and neglecting one of them can lead to serious consequences for the business.
You might spend thousands of dollars on software, but if one employee falls for a phishing attack, a lot of problems will emerge. In some cases, this can render the most innovative and efficient software useless.
Fraud prevention methods
There are numerous prevention strategies that you’ve implemented. However, these three are some of the most helpful and efficient options that you can pick. Although they aren’t perfect, just like any other method, they’ll protect you from the majority of fraud types.
Monitoring tools
One of the best ways to protect your business is to implement real-time monitoring tools. They can recognize threats before they happen and provide the business with the necessary insights to react.
There’s a plethora of features that these tools have. They can monitor all the transactions that are conducted on your platform. Of course, the nature and way in which you’ll monitor this depends on whether you’re a fintech business, an online store, or something else.
You’ll be able to set rules that automatically recognize certain transactions as fraudulent. For example, if an account that hasn’t completed the verification immediately starts making large purchases.
On the other hand, you’ll also be able to create different risk categories and evaluate all transactions based on them. If one user usually makes $10 to $100 purchases and then suddenly makes a 1000$ purchase, this could be a sign of a stolen account.
However, this could be completely legitimate. The tool allows you to check other aspects of this transaction and account, such as their location, payment information, etc. to provide you with insights on whether there’s anything more suspicious than the sum itself.
Choosing a fraud prevention tool
Different monitoring and fraud prevention tools have different features. You should see this comparison and see which option suits you the best. The choice that you’ll make largely depends on your budget, industry, and the risks you believe you’re most exposed to.
Of course, all of the options on the market will be helpful at some level, but some tools are more helpful to some than they are to others.
Regular assessments
Your business should regularly check the different parts of your company’s infrastructure in order to ensure safety. This process starts with access control. You need to check whether everyone has the proper permissions.
This goes both ways. It includes checking whether the employees have proper access to documents that enable them to work. On the other hand, this process should check whether there are employees, or past employees, who might have access to information they aren’t supposed to.
On the technical side, companies should periodically explore the different devices and networks they are using. This ensures that there aren’t any devices that aren’t approved, or the ones that are unauthorized.
External security
Externally, businesses should discuss security and compliance with third parties. Vendors and partners that one’s business might collaborate with need to be on the same level in terms of security and compliance.
If they suffer a data breach or a similar incident, then there is a good chance your company is also compromised. Periodical assessments should also confirm that the company is properly documenting incidents, fraud attempts, and other similar situations.
Cybersecurity protocols
Besides the monitoring tools, it’s also important to implement other cybersecurity software.
Anti-virus software ensures that viruses aren’t able to start their execution, or get downloaded. They often function in real-time, ensuring that the employee is notified immediately once they download or try to execute the file.
On the other hand, firewalls, both software and physical, can help defend the company’s network. This is a crucial line of defense for numerous types of cyber attacks and significantly helps with fraud prevention.
Companies should also implement encrypted traffic in their internal networks and use cloud tools that use advanced encryption protocols. Encryption ensures that even in the case a company’s network is breached, hackers won’t be able to read their files or spoof their communication.
Common advice for both individuals surfing the internet and enterprises is to regularly update and patch their software. Depending on the CMS that the company is using, it might be automatically updated, but it’s always a good idea to double-check this. One of the giants in the gaming industry, Epic Games, suffered a breach because one of its pages hadn’t been updated since 2004.
By implementing multi-factor authentication, companies can ensure another crucial line of defense against online attacks. MFA ensures that even if an employee’s account is stolen, the hackers won’t be able to access it without additional authentication. This often refers to SMS or email codes, or one-time tokens generated by authentication apps.
Prevention vs Compliance
There are important differences between fraud prevention and staying compliant. Just because a company operates under regulations, such as GDPR, PCI DSS, and financial and AML regulations, doesn’t mean that it’s safe.
While many of these regulations ensure that companies implement security practices, they should always strive to go a step beyond that. Fraud prevention goes far beyond checklist thinking. It’s about actively identifying, monitoring, and mitigating risks in real time.
The company should always strive to be compliant, but it also needs to have other prevention practices in place. Prevention proactively reduces the chances of incidents, and it requires real-time monitoring of risks.
Making sure you’re one step ahead of fraudsters
Online fraud is a significant problem for both individuals and businesses. Businesses can put their reputation at stake if they don’t handle transactions conducted by their customers and the cybersecurity aspects of their operations.
While implementing some of the cybersecurity methods I’ve mentioned can be costly, it’s still much more affordable than being sued. The best way to treat fraud prevention methods is to implement both traditional and innovative ones.
This combination ensures that the emerging fraud types are recognized while protecting you against older attack methods like brute force or social engineering. Regardless, don’t forget to properly assess your company’s risks.
Veljko Petrović
Veljko is an IT student who has successfully combined his passion for technology with his exceptional writing skills. As an emerging specialist in cybersecurity, he has completed several courses and has been published in notable blogs in the industry. In his free time, Veljko enjoys weightlifting, reading, and programming.
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