How Treasury Management Plays a Key Role in Fraud Prevention

By: Jason Olson, Director of Treasury Management, VP, Omaha, NE
November 25, 2024 | Growing Business
A Male Entrepreneur Using a Treasury Management System on his Tablet at His Carpentry Business

Strengthening Financial Security: How Treasury Management Plays a Key Role in Fraud Prevention 

Financial threats are constantly evolving, and safeguarding your company's funds requires more than just careful accounting. That's why it's crucial to combine good treasury management services with strong fraud prevention. These solutions do more than just track money — they are on the lookout for any signs of fraud, using smart systems and controls to protect your company's financial assets.

In this article, we’ll explain how these services can help safeguard against monetary losses by monitoring transactions and mitigating fraudulent activities.

Types of Small Business Fraud

Your small business, just like any larger organization, is vulnerable to various types of fraud. Here are a few common types to watch for.

Employee Fraud

This happens when employees misuse their access to company funds or financial systems for personal gain. Examples include embezzling cash, falsifying expense reports and stealing inventory.

Billing Fraud

Billing fraud happens when someone inside or outside a business uses the invoicing system to steal money. This can include overcharging clients or suppliers, submitting false invoices, or working with third-party vendors to create fake invoices for goods or services that were never delivered. Without proper checks and balances, overpayments or discrepancies may go unnoticed for long periods.

Credit Card Fraud

Credit card payments are a popular option for both customer transactions and business expenses. This can open the door to various forms of fraudulent transactions, stolen card information or unauthorized charges. A common method is when employees use company credit cards for personal purchases. This can lead to financial losses, chargeback fees and reputational damage if customers’ data is compromised.

Cyber Fraud and Phishing

With the rise of online businesses and digital transactions, cyber crime has become a significant concern. Phishing attacks, where fraudsters pose as legitimate entities (such as banks or suppliers) to trick employees into revealing sensitive information, are widespread. Hackers may also target business networks to steal financial data, customer information or login credentials. Companies without small business cybersecurity can be more vulnerable to these types of attacks, leading to financial and data losses.

Payroll Fraud

This occurs when someone manipulates the payroll system to either overstate hours worked or create fake employees. For example, an employee might falsely report more hours worked, or a payroll clerk could add non-existent workers to the payroll and pocket their wages. This type of fraud is particularly harmful because it directly affects your company’s cash flow, and it can go unnoticed for months or even years without regular audits and checks.

Treasury Management Services to Help Prevent Fraud

Many modern treasury management solutions come with built-in features designed to detect, prevent and mitigate fraudulent activities. Below are a few types to consider.

ACH Services

ACH services can be used to pay your employees via direct deposit and to handle payments to and from your vendors and suppliers. This type of service is faster than a check, cheaper than a credit card and more secure than checks, credit cards or wire transfers.

Positive Pay

You can better protect your business against unauthorized transactions with Positive Pay. It helps you take control of your business banking account and monitor checks and ACH debits for potential fraud.

Lockbox Payment Processing Solutions

Instead of payments being mailed to your business, with lockbox services they are sent to a physical post office (P.O.) box where they’re collected by a third-party processing team. Payments are delivered directly to your bank account after processing, speeding up the receipt of payments and improving cash flow. 

Remote Deposit Capture

You can deposit checks to your accounts from your computer or mobile device with Remote Deposit Capture. Fraud prevention features may include image validation, check authenticity verification and secure transmission of data.

How Treasury Management Services Can Help Reduce Fraud

Fraud prevention tools and services play an essential role in helping you protect your financial assets, improve security practices and reduce the risk of both internal and external fraud. By using advanced detection tools, cash flow controls, secure payment systems, automated reconciliation and separation of duties, you can strengthen your financial defenses.

Advanced fraud detection tools can automatically monitor financial transactions for signs of suspicious activity. They can track patterns, flag unusual transactions and set up alerts for attempted payments to unfamiliar vendors or new bank accounts. This proactive monitoring allows you to quickly spot and respond to potential fraud before it escalates.

Treasury services often include cash forecasting and liquidity management to track incoming and outgoing funds more accurately. By having clear visibility into cash flow, you can spot unusual transactions, unapproved payments or excessive withdrawals in a timely manner.

With features such as encrypted transactions, multi-factor authentication (MFA) and payment approval workflows, secure payment processing platforms services help reduce the risk of fraud during transactions.

Additionally, using services that integrate with your company’s bank accounts can help track payments and transfers — making it more difficult for fraudsters to manipulate or divert funds without being detected.

Instead of reconciling financial records manually, which can be a time-consuming process, treasury management services automate this process. They ensure that bank statements, accounts payable and accounts receivable records are regularly compared and matched. This reduces the risk of errors and ensures that discrepancies are identified and addressed quickly.

Treasury management solutions can help separate financial responsibilities, like approving payments, processing transactions and reconciling accounts, among multiple people, so not just one person has control. For example, the person who initiates payments should not be the same person who approves them. These systems can automate certain processes to ensure that these separations are maintained consistently, even when your business grows, or employees change roles.

As part of treasury management, your business can implement systems to verify the legitimacy of vendors and employees. These may include tools for confirming the identity of new vendors before payments are made or making sure that your employees are properly vetted before being added to payroll systems. These systems can also track any changes to payment details, such as bank account numbers or contact information, and alert management to ensure that these changes are legitimate. It’s important that you and your employees recognize common fraud schemes. Fraud awareness training can help your staff identify suspicious activities and understand how to respond, reducing the likelihood that an attacker will succeed.

Fraud Prevention Best Practices

To help reduce the risk of fraud, conduct internal and external audits. Internal audits ensure that policies are being followed, while external audits offer an independent, third-party review of your business’s financial practices. Pairing audits with real-time reconciliations, your business can quickly detect discrepancies and minimize the window for fraudulent activities to occur. Automated reconciliation tools can streamline this process, ensuring continuous oversight of cash flows and bank activity.

Effective cybersecurity measures, such as data encryption, multi-factor authentication and secure network protocols, protect against unauthorized access to sensitive financial data. Additionally, you should establish clear contingency plans for fraud incidents and outline immediate actions to take if fraud is detected, including freezing accounts, notifying stakeholders and reporting the incident to authorities. Having these plans in place ensures a rapid and organized response to minimize damage.

Collaborating with your financial institution is equally vital to enhance fraud prevention. Establishing a strong, strategic relationship with a local bank like Northwest Bank not only gives you access to the right financial tools and services but also provides a collaborative approach to managing fraud prevention. The bank will look at how your money comes in and goes out and what you can do when you have it. Then they work with you to find the treasury management products that are best suited for your business. For instance, you can set up alerts to notify you when certain thresholds are met, such as large payments or out-of-pattern transactions. The more you communicate your needs to your community bank, the more tailored and effective the fraud detection can be.

To learn more about how Northwest Bank can help your business, contact one of our Treasury Management Representatives today.

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