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What is the impact of financial crime and how can you reduce risks to your business?

What is the impact of financial crime and how can you reduce risks to your business?

Synopsis
7 Minute Read

Financial crime can affect anyone — no matter whether you are a small business owner or the owner of a large corporation. These types of crimes can have significant impacts on your business and your personal health. It is vital to understand:

  • How financial crime impacts your business
  • What happens after a financial crime occurs
  • What measures your business can put in place to reduce the risk of financial crime

During Victims and Survivors of Crime Week 2024, discover the impacts of financial crime and the measures you can put in place to reduce threats to your business.

Director, Forensics and Litigation Support
National Leader, Forensics and Litigation Support

Financial crime can affect anyone, no matter whether you are a small business owner or the owner of a large corporation. These crimes not only impact the finances of your business — but can also have a significant impact on your employees, family members, and personal health. 

Prevention, detection, and response are crucial to help your business reduce the risk of financial crime. During Victims and Survivors of Crime Week 2024, discover the impacts of financial crime — and what steps you can take to protect your business.

How can financial crime impact your business?

Fraud, cybercrime, corruption, and other types of financial crime can impact any business in any sector. The example below is just one instance of how a financial crime may occur — and how it may impact your business when it is discovered.

Imagine that you are a small business owner. The impacts of COVID-19 are behind you and your sales are increasing. While the cost of goods is also increasing and your margins are narrowing, both your business and the economy are picking up. The future looks bright.

You trust that your team of salespersons, bookkeepers, and managers are looking for new ways to expand your enterprise and capitalize on new markets. Your bookkeeper says that you have plenty of money in the bank and room for growth.

However, the bookkeeper keeps making excuses when you ask to see the bank statements or monthly reconciliations. “The accountants have the records,” or “the accounting software crashed” — or they simply ignore your requests.

A vendor calls you one day to ask when you are going to pay for their services. When you contact the bookkeeper, they tell you it was an oversight, and they will send the payment out that day. However, the same vendor asks when that payment will be made weeks later — and the bookkeeper is no longer responding to your emails.

You decide to take matters into your own hands and have your bank send your bank statements to you. When they arrive, you find out that your business account is in overdraft — and you have outstanding lines of credit and loans in excess of $200,000. Overall, more than $400,000 has been stolen from your business over the past two years. Your bookkeeper has disappeared, and it is unlikely that you will be able to recover the funds.

What happens after a financial crime occurs?

Forensic accountants and law enforcement respond to scenarios such as the one described above on a weekly if not daily basis. Victims of financial crime suffer significant psychological and physical stress that may impact their own health, as well as the health of their family members and employees. Financial crimes are committed by people in a position of trust — and that betrayal weighs heavily on the victims.

Financial crime has a significant impact on your:

  1. Business — Businesses victimized by crime are at a high risk of bankruptcy. The stress and depression of trying to recoup your life after experiencing financial crime can be devastating.
  2. Personal health — Victims of financial fraud often suffer from depression, anxiety, and general health issues as they try to rescue their business and personal life. Several studies indicate that personal debt poses a significant risk to both physical and mental health.
  3. Reputation — An employee’s fraudulent actions can make your clients concerned about their personal data, the health of your business, and its long-term viability. Businesses that are already suffering from the financial losses of crime may be further victimized through losing the trust of the community.
  4. Unintended victims Family members and employees are the unintended victims of financial fraud and are also one of the largest unreported victims of financial crime. While they may not be directly involved in the management of the organization, they may lose their livelihood and suffer from fear, depression, loss of income, and stress.

Forensics and Litigation Support

Have confidence in a crisis. MNP’s team of Forensic experts will ensure you have the facts and critical understanding to make informed decisions.

 How can your business reduce the risk of financial crime?

Prevention

Prevention involves implementing strategies within your organization to reduce the incidence of fraud. This includes strategies to identify risks, enhance employee training and education, maintain good internal controls, and institute and monitor policies and procedures.

Ensuring that your business has the right anti-virus software, malware detection, and employee training can lower the incidence of victimization by cybercrime. Additionally, implementing controls that monitor, protect, and predict financial crimes can help reduce the impact.

Detection

Detection is the process of mitigating the fraud attempt. It is crucial to identify when an attempt may be made as early as possible to mitigate both the financial losses and impact on the victim. Detection may be electronic or may be through providing the education your employees need to identify fraud attempts.

Response

Response involves ensuring you have the right people and processes in place to deal with the matter quickly and seamlessly. However, sometimes the response to fraud may revictimize those who have experienced financial crime — and it is important to get the right support to help you navigate the process.

These are a few of the difficulties that you may face when responding to financial crime:

  • Criminal justice system The criminal justice system can often feel like an insufficient remedy to financial fraud. It is intended to punish the offenders and does not generally provide a recovery mechanism for financial crimes to satisfy victims. Victims often feel frustrated by the duration and results of criminal courts. While it may be satisfying to take the offender to court, it is often not the best remedy for your situation.
  • Insurance coverage Insufficient insurance coverage can seriously impact your recovery. Businesses often have coverage to protect against damage or fire but are insufficiently protected against employee malfeasance. It is critical to ensure you not only have adequate insurance to cover your loss, but also the right professionals to quantify the loss.
  • Stress management Critical incident stress management is often overlooked. The HR professional working for you may not have managed critical incident stress before, and it is important to find the right professional to help you and your team manage the stress of financial crime.
  • Cyber recovery Ensure your digital infrastructure is permanently clear of danger and that any weaknesses are identified and mitigated if the financial crime was committed by a cyber criminal. The cost of cybercrime recovery is increasing as the number of cases rises significantly.

Take the next steps

Victims of financial crime often experience significant and ongoing effects to their physical and psychological health. A strategy to prevent, detect, and respond to financial crime can help reduce risks and mitigate the impact on yourself and your business if a financial crime occurs.

For more information, contact a member of MNP’s Forensics and Litigation Support team. We can help mitigate, identify, and resolve occurrences of fraud within your organization — and provide the litigation support you need to protect both your reputation and assets.

Michael McCormack CFI

Director, Forensics and Litigation Support

780-733-8673

1-800-661-7778

[email protected]

Lisa Majeau Gordon FCPA, FCA, CA•IFA, CFE, CFF

National Leader, Forensics and Litigation Support

780-453-5375

1-800-661-7778

[email protected]

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