Corporate fraud and data breaches are a persistent and unavoidable fact of business life, affecting businesses of all sizes.
These frauds are so prevalent today because they occur much faster than financial institutions can understand and detect them. It might take a company months to investigate and recover losses. By that time, the cybercriminals move to the next business and repeat the same cycle.
A business can no longer ignore the importance of fraud prevention and privacy laws. These laws and fraud prevention techniques can help protect customers’ data and critical business information.
In this article, we explore four things an organization must know to prevent fraudulent activities.
4 things you need to know about fraud prevention and privacy Laws
Before implementing a fraud detection framework and ensuring adherence to privacy laws, it’s essential to know these things:
1. Importance of data and fraud prevention
In the age of the data economy, a company’s true value is the customer data they collect. This makes data an asset worth protecting. Still, why don’t companies have a dedicated budget for fraud and data prevention?
Many companies fail to understand that they only borrow the customer’s data, and it’s their responsibility to protect its integrity.
Data privacy regulations ensure data protection and help companies gain the trust of their customers.
Privacy laws or regulations like the General Data Protection Regulation (GDPR), California Consumer Privacy Act (CCPA), and California Privacy Rights Act (CRPA) help customers control how a company uses its data.
While privacy laws help you build a reputation with customers, fraud prevention increases the confidence of investors, partners, suppliers, and auditors in your ability to control any potential frauds.
With organizations losing 5% of revenue every year to frauds, implementing fraud prevention techniques can be the difference between a successful and unsuccessful business.
With the high prevalence of corporate fraud and the high cost of fraud, companies can no longer afford to operate without systematic fraud prevention and data protection programs.
2. Consequences of non-compliance to privacy laws
With businesses losing $4 million on average due to a single non-compliance event, adhering to the privacy laws makes sense.
Apart from this financial obligation, companies that do not adhere to data privacy regulations might face legal consequences, depending upon the severity of non-compliance. For instance, in a GDPR violation, a company might have to pay up to 4% of its revenue.
Also, when a data breach occurs, the repercussions are not limited to fines and penalties. It adversely impacts stakeholders, including customers, vendors, and employees. The affected parties might take legal action or file a lawsuit.
Even after paying the fines, businesses may undergo costly audits every year to keep the stakeholder’s interest intact.
Also, this non-compliance can force a business to temporarily shut down some of its operations, resulting in revenue losses. Interestingly, many organizations never recover from the impact of a significant data breach.
Any security or data breach resulting from non-compliance can lead to the loss of critical business data. Cybercriminals can make money by selling this information and launder the proceeds.
So, rather than facing monetary and non-monetary repercussions, adhere to the data privacy laws in your area.
3. Strategies for data protection
The best fraud prevention books suggest that organizations must implement security policies and strategies. Some effective strategies are:
- Creating encryption policies: Most companies lack policies around data encryption that can result in financial frauds and data breaches. Although encryption will not stop malicious criminals from accessing an organization’s data, it might prevent them from using it. It works by obscuring information and replacing the identifiers with something else. This ensures that the data is accessible only to authorized users.
- Building password policies: Though it might sound like an old-school policy, creating a password policy in the organization can prevent potential frauds and data breaches. One of the easiest ways for cybercriminals to access personal information is by cracking the account passwords. So, focus on creating a comprehensive password policy that requires employees to use a different password for every account.
- Implementing data processing policies: Mapping how information flows in the organization is essential to understand how the organization processes data, uses data and receives it.
- Restricting access to sensitive data: You can minimize exposure to risk by making data accessible to people who need it. You reduce the risk of giving power to one individual. This distributed approach to data storage and access is likely to prevent your organization from potential fraud.
4. Strategies for fraud prevention
Here are a few strategies for fraud prevention:
- Training employees: Train your employees on fraud and data breaches by telling them what to look out for and how to report fraudulent activities. Frauds and data breaches might differ from one industry to industry. For instance, if you’re in the healthcare sector, look for false billing or incorrect diagnosis reporting. If you’re in the financial sector, look for tax, investment, or credit card frauds. Awareness and training are the cornerstones of any fraud prevention strategy.
- Conducting spot audits: Implementing a spot audit program and conducting audits on vulnerable areas can keep you ahead of the fraudster. Such audits can help you find potential threats and overcome them before it results in monetary losses.
- Testing transactional data: For effective fraud prevention, conduct a test of 100% of your data. While sampling can effectively detect consistent problems in the data population, it cannot prevent fraud. When testing a small sample of data, you can miss out on smaller anomalies, which may add up over time to result in fraud. Fraudulent activities by nature do not occur randomly.
- Implement a fraud and ethics policy: Focus on developing and implementing a policy regarding the expectations for employees, including consequences of violations. Sharing the intended consequences of breaches is an effective method of preventing fraud.
How can you save your company from fraud and data breaches?
We’re exchanging more data than ever. The technology changes rapidly, requiring organizations to rely on data privacy solutions and fraud prevention techniques.
Fraudsters and cybercriminals have developed sophisticated tactics, so it’s essential to stay on top of these changing trends to prevent your business.
Communicating a well-drafted fraud and ethics policy to all employees, suppliers, and contractors can help you fight against fraud. This might lessen the risk of businesses becoming victims of online fraud.
These four things can still go a long way in helping your business mitigate its fraud and data breaches.