Do not be a victim: Fraudulent claims can bring a business to its knees

Most Americans are familiar with fraud in one form or another. An individual selling a car alters the odometer to make it appear as if the vehicle has been driven fewer miles. A fake organization collects donations for a made-up cause and absconds to Tahiti with the money. The news also broadcasts frauds on a much larger scale, those involving thousands of people and millions of dollars.

Enron has become a symbol of corporate corruption and fraud and its accounting firm, Arthur Anderson, came down with the energy company in a flurry of criminal charges. Creative accounting tricks also brought down MCI WorldCom, a telecommunication company, and cable provider Adelphia. Fake restoration projects brought in investors by the droves for the Zzzz Best Carpet Cleaning company before its fraud was discovered. Some frauds are less obvious, hiding behind legitimate purposes and destroying businesses.

Decades ago, employees of Johns Manville – a corporate manufacturer of insulation and roofing materials that is currently known as Manville Corporation – started dying of diseases such as lung cancer, mesothelioma and other debilitating lung diseases caused by asbestos.

Over the years, thousands of claims were made against the company and it ultimately succumbed to bankruptcy. As is common in the asbestos litigation world, a trust was formed in order to process and pay out claims made by the injured or their survivors. Unfortunately, a recent story in the Wall Street Journal reveals that a number of individuals’ claims may be fraudulent, increasing the concern that those rightfully entitled to compensation for their injuries may not get any money.

Protection from fraud

Fraud hurts entities and individuals alike. Those who make fraudulent claims take money out of the pockets of those who suffer from legitimate personal injuries. Businesses and companies across America suffer from fraud as well.

According to the Association of Certified Fraud Examiners (ACFE), U.S. entities lose nearly 10 percent of their annual revenues because of fraud. Small businesses suffer the most from scams and, in this difficult economy, can quickly fail after being ripped off. However, there are a few things companies of all sizes can do to help protect themselves from fraud:

• Know your enemy: Learn about common schemes such as check tampering and fraudulent billing. For example, discontinue using paper checks and use direct deposit instead.
• Look for fraud: Train employees to look for fraud and create internal monitoring systems.
• Secure your data: Set up and maintain data protection systems. Keep them up to date and change passwords frequently.
• Check for errors: Check bank statements frequently, perform surprise audits of all departments and enforce mandatory vacations for key employees.
• Establish a fraud hotline: The ACFE says businesses with fraud hotlines frequently cut their losses in half.

Seek legal assistance

If you or your company is the victim of fraud or you have questions about how to protect yourself from problems that plague businesses, contact an experienced business lawyer. An attorney knowledgeable about commercial law and litigation matters may be able to assist you.