Security Tips for the Self-Employed
By Christopher J. Bachler
The first rule for home businesses and boxers is the same: “Always keep your guard up.” That’s because fraud in the business world today is more common than ever before. Advanced technology, the “shrinking world,” and the ongoing growth of a “virtual economy” are all partly to blame.
Identities are easy to steal, and fortunes may be made or lost with a few keystrokes. Scammers can strike with impunity from any part of the globe, even from countries that have no extradition treaties with the United States.
Along with identity theft and online fraud, honest businesspeople need to watch for investment fraud, telephone fraud, and even work-at-home scams. That’s why small businesspeople need to be aware of these growing perils, familiar with the most common schemes, and know how to protect themselves.
Hearing so much about “cyber attacks” and identity theft, it’s hard to imagine that any peril could be greater. But for the typical small businessperson, there is actually a greater chance of being taken by those we know than by those we don’t.
If you’re stung by a customer, it will most likely be through some form of payment fraud. If they simply won’t pay, you can take them to court. But suppose the fraud is bigger and more complex? Suppose you receive a bad check, for instance. Check fraud is actually on the rise, due mainly to the capability of today’s computers and printers to produce authentic-looking checks. Identity thieves might even be using bogus bank accounts.
Before accepting checks, watch for checks with:
· Serial numbers lower than 200.
· Poor print quality
· A lack of bank information or clear account numbers
· No perforated edges (other than government checks)
· Signatures that are hard to read or don’t fit properly in the space provided
If you accept payment cards, watch for cards that are:
· Newly issued
· Don’t match the person’s identification
· Appear to be retouched
· Have unclear numbers or print
· Appear to be strange or unconnected to easily-identifiable financial organizations
Also beware of buyers who use cards with which they don’t seem to be familiar, or who pull the card from a pocket instead of a wallet. Another scam is known as “bust out fraud.” These individuals start out paying their bills on time. Once they gain the seller’s confidence, they will gradually increase their purchases until they make a large purchase, and then fail to pay. They might simply disappear, or file for bankruptcy.
To avoid this trap:
· Be careful about extending credit to new customers.
· Check out a customer’s credit history before granting credit.
· Watch for customers who incrementally buy more on credit.
· Establish firm credit limits.
· Avoid buyers who don’t provide home or business addresses.
Always seek payment as soon as possible following service, and before you do more work. If possible, get some money upfront, and require the customer to sign a purchase agreement before you do work of any magnitude. This is standard business practice, and those who don’t understand won’t make good customers. Also be wary of dealing with buyers outside the country since many scammers operate from abroad and are hard to catch.
While most home-based entrepreneurs work alone or with family members, some do establish partnerships. While partnerships may be useful, they can also be very thorny since each partner may enjoy equal access to company resources. Should one partner be dishonest or irresponsible, the others could be ruined.
Therefore, avoid formal partnerships with anyone you haven’t known for many years and with whom you’ve never done business. Also be sure your partner is financially solvent and responsible. Partners must know a great deal about each other’s personal and financial circumstances if the arrangement is to work. Also consult an attorney before you form any partnership.
Dishonest employees pose the single greatest threat to small businesses. That’s because small organizations can’t implement the sophisticated safeguards that are typical of larger organizations. Smaller employers also have less time to watch employees.
Some schemes that dishonest employees have been known to pull include:
· Stolen trade secrets
· Double-billing for vendors, paying them, and pocketing refunds
· Creating dummy corporations which submit bogus bills to the employer
· Steering company business to organizations owned by the employee’s friends or relatives
· Buying personal items out of company funds
· Stealing company property
· Submitting invoices from bogus companies for nonexistent inventory
It’s wise to separate accounting and recordkeeping work so perpetrators can’t easily cover their tracks. You should also carefully supervise anyone who works with finances or inventory.
Also hire carefully. Check resumes and facts given by applicants. Smaller employers are less likely than larger organizations to do so—another reason why they are more likely to be stung. Credit checks are another cheap but useful way to screen out undesirable applicants. Honorable people tend to have good credit histories.
You might even run fresh background checks before promoting someone to a more sensitive job. That person’s circumstances may have changed since you hired him.
· Never give anyone a blank check, or automatically pay for supplies purchased before you see the receipt and the goods.
· Limit an employee’s authority to spend money or control inventory.
· Require workers to take at least one week’s vacation each year so you can examine their work in detail.
· Beware of skimming disguised as “refunds.” These illegitimate refunds may often be given in round numbers, such as $200. Most legitimate sales are represented by uneven amounts.
· Have a CPA examine your books if you suspect a problem.
· Give a written code of conduct to all new hires.
· Keep inventory or valuables safely stored.
· Encourage workers to report any suspicions of fraud.
Dishonest vendors can drain your assets faster than a black hole can gobble up matter. So be careful before you do business with them.
First, make sure that anyone you deal with has a regular permanent address. Shy away from vendors who provide only P.O. boxes. Even if they provide an address, double-check to make sure it’s accurate. You can find most businesses online.
Carefully examine terms of payment before you agree to them. How much money is involved, and on what terms must payments be made? Before you sign up, check other vendors to determine the standard practices in their industry.
· Get all guarantees in writing.
· Obtain and check references. Also ask those references for the names of other past clients. Don’t just rely on the vendor’s ready-made list.
· Do a Better Business Bureau check on all new vendors. You can do these online at www.bbb.org.
· Check credentials. Do they possess the relevant credentials for serving you?
· Read all important documents and agreements in detail, or have your attorney do so. Lots of heavy-duty words in fine print could be red flags.
At least self-employed people are usually small enough to control their own finances. Even if finances bore you, you’ve got to get deeply involved if you want to protect your assets. Therefore:
· Keep personal and business finances separate. This can minimize your losses should someone else gain access to your account.
· Maintain sole payment authority. If you must share some authority, pick someone you can trust, and have a third party supervise that person’s work.
· Check statements regularly. You need to identify problems as soon as possible.
· Accept personal checks at your own peril. To be safe, go for cash, money orders, or cashier’s checks. But also watch out for phony checks and money orders. Thanks to advances in printing technology, there are increasing numbers of these floating around.
· Use unique Personal Identification Numbers (PINs) for each account, and choose codes that won’t be easily guessed.
· Keep your computer password protected, and maintain sensitive financial records on a dedicated, non-networked computer. HBM