Real-time Risk Assessment for Fraud Prevention in Business

Fraud is a constant threat to the business world as it directly affects the bottom line of the company. Research shows that 33% of fraud prevention cases increase in businesses every year. The primary reason behind the scams is improper business verification while onboarding the company. The company is involved in money laundering, corruption, bribery, and terrorism financing and is exposed to threats. Therefore, corporations must rely on knowing your business verification while hiring a company. A complete inspection of the company is required to detect potential risks on time. Otherwise, the business partner may face sanctions, penalties, and other legal consequences. 

What is Fraud Prevention?

Fraud prevention is a strategy to fight against fraudulent transactions and prevent businesses from experiencing financial loss and reputational damage. There is a rapid shifting of business to online banking channels, and digitization requires a high demand for fraud prevention strategies. Every corporation needs to define strict policies to counter financial risks associated with third parties. Beyond any doubt, it is better to prevent fraud rather than recover from it once the loss occurs. 

In recent times, there has been a close connection between cybercrime and fraud prevention. Over time, experts are developing new authentication and fraud detection solutions, so more fraudsters rely on the Dark Web to share information. Therefore, advanced measures are needed to understand fraudulent tactics, their nature, and how to prevent fraud practically. Forensic accounting services can help prevent fraud and reveal financial crimes, as they help find out where the money is stolen and how to recover it. 

Fraud Prevention vs. Fraud Detection Solutions

Fraud prevention and detection are both important to financial institutions and building business-to-business bonds. These concepts are related to cybersecurity but have different meanings:  

Fraud Prevention

• Fraud prevention is the prerequisite to avoiding fraud
• The purpose of fraud prevention is to minimize the risk of fraud in future 

Fraud Detection

• Fraud detection occurs when fraud is happening, or there is suspicion of fraud 
• The purpose of fraud detection is to monitor and mitigate fraud
• Proper fraud detection solutions reduce false positives to improve business relations

Strategies to Prevent Frauds

1. Know Your Business 

Know your business involves an in-depth investigation of the company to detect potential associated risks. In this investigation, the corporation must ask for the details of the third party, including business name, physical address, mailing address, registration number, and tax reference number. The documents relevant to the industry are collected and screened against official databases. The missing or invalid information raises red flags, so the potential risks are identified. A corporation must rely on KYB procedures while onboarding companies to avoid fraud. 

2. Setting Up Reporting System

While hiring the company, the corporation must set up a reporting system to be updated about the legal and financial status of that partner. If the company is involved in illegal funding, the corporation is timely reported about that. After the bond-making, the corporation needs to step up a plan for getting reports from the business partners. This reporting system helps to detect the illegal transactions and fraudulent activities of third parties. 

3. Rigid Policy for Third Party

The corporation must have an organizational structure with written policies about third parties. An open-door policy about risk assessment, mitigation, and monitoring is necessary to fight fraud. The beneficial owners of the third parties must be accountable to the corporation because of illicit funding and activities. 

4. Rely on KYB Services

A corporation official has a lot of operational, management, and sales tasks to lead. KYB verification is not handled alone while onboarding the company. The corporation must rely on professional KYB service providers for fraud prevention. The experts have well-defined strategies and solutions for screening businesses. This helps to bond with legitimate companies and filter out illegal ones. Additionally, KYB procedures offer ongoing monitoring of the companies to detect potential threats to their financial relations at any time. 

Ensure Business Protection  

Making business bonds without a verification process is constantly exposed to potential risks and threats. The corporation must focus on designing the policies for fraud prevention in financial relations. It is necessary to evaluate the legal and financial status of the company while hiring it. Once the company is onboard, it is also important to keep everything of the financial relation on the record. This helps monitor fraudulent activities and mitigate them on time so that corporations will not face sanctions and penalties from legal bodies. Hence, businesses must rely on strong strategies for fraud prevention to ensure security in financing. 

Also Read: Customer Due Diligence Process | An Authentic Fraud Prevention Approach