Training Your Employees to Spot Fraud

If you're a business owner, you know fighting fraud is an ongoing struggle. “Organizations worldwide lose an estimated five percent of their annual revenues to fraud,” according to the Report to the Nations’ 2018 Global Study on Occupational Fraud and Abuse by the Association of Certified Fraud.

Employees: your best fraud prevention resource

While thinking about the problem of fraud can be potentially overwhelming, especially for small business owners who don't have the resources of large corporations, there is good news. With the right training and education, your employees and staff can be your best asset in terms of preventing and detecting fraud.

You're most likely to detect suspicious behavior if it's a group effort. Training employees to combat fraud also has the potential to boost morale, because it makes your staff a part of the solution, as opposed to mere bystanders.

Of course, to implement an effective training program, you first need to determine the policies and procedures that need to be in place at your business. Employees should know what constitutes fraud, be able to recognize red flags for common types of fraud, and understand how fraud has the potential to harm everyone in the organization (i.e. resulting in layoffs, for example).

Reporting Fraud: The next steps

Once fraud is detected, employees need to know what to do next. They need a way or a place to report it, like a hotline or anonymous mailbox. Or if a customer is suspected of engaging in fraudulent behavior, you want to encourage face-to-face sharing of tips and information so staffers report potential issues to managers, supervisors or ownership in a timely fashion.

Card-not-present fraud

According to the LexisNexis® Risk Solutions True Cost of Fraud Study common types of fraud include fraudulent or unauthorized transactions (including the misuse of stolen payment methods, like credit and debit cards), as well as fraudulent requests for refunds or returns. Fortunately, there are excellent tools to help combat credit card fraud. If you take card-not-present (CNP) orders or do a mail order/telephone order business, particular attention should be paid to the tools available. Fraudulent or unauthorized CNP transactions can lead to chargebacks and costs associated with issuing credits or reversals, not to mention lost revenue due to a damaged reputation and eroded consumer confidence. Excellent tips for preventing CNP fraud can be found in the TSYS recent white paper titled Tips for Preventing Credit Card Fraud and Avoiding Chargebacks.

Additionally, employees who interact with customers via the Web—or spend any time on company computers—should receive security training. For example, employees need to know not to email or text sensitive data or reveal private customer information in chat sessions. Also, staffers should be educated about the dangers of phishing, which involves fraudulent attempts to get personal or company information that can be used to perpetrate identity theft.

Card-present fraud

For front-line employees or staffers interacting with customers face-to-face, focus on card-present credit card fraud. Train employees to be on the alert for suspicious behavior, such as the purchase of:

  • Multiples of the same type of merchandise
  • Very expensive merchandise, without asking any questions about it
  • A wide array of merchandise, without regard to color/size/price

Also, employees should be cognizant of customers who make a purchase and leave, but then return later to make additional purchases, as well as those who attempt to rush or distract cashiers or make purchases shortly before closing time.

Employees should also note:

  • Never accept an expired credit card, a card that has been altered or a card that remains unsigned 
  • Verify that the card number on the terminal matches the account number on the card, and that the name and last four digits on the sales receipt match the name and last four digits on the card

 

Employee or internal fraud

Although employees may be your best defense against fraud, it’s also possible they could perpetrate fraud.

The PwC 2018 survey indicated 46% of economic crime were committed by internal actors in 2016 & 52% in 2018. Internal actors include the vendors and other third parties you interact with, and a bad actor among them might be described as a 'frenemy' of your organization.

The most common behavioral red flags exhibited by employee/vendor perpetrators of fraud (as identified by the Report to the Nations) are: living beyond means (41%) and financial difficulties (29%), followed by unusually close association with a vendor or customer, excessive control issues or unwillingness to share duties, recent divorce or family problems or an attitude involving shrewd or unscrupulous behavior.

The success of anti-fraud controls

When it comes to detecting fraud, start with your greatest and most effective resource; your employees. By providing training and knowledge, you not only can save yourself significant revenue, but a lot of stress as well.