Fighting Fraud at Your Business

May 9, 2011  |  

(Businessweek) — Small business owners reported $8 billion in fraud losses in 2010, mainly related to hacked credit cards and bank accounts, according to a new study of about 900 small business owners and self-employed individuals by Javelin Strategy & Research, a research firm in Pleasanton, Calif. Of that $8 billion, some $5.43 billion was out-of-pocket expenses incurred due to fraud, including lost business, legal fees, and insurance payouts, says Philip Blank, a senior research analyst at Javelin and author of the study. Blank spoke recently to Smart Answers columnist Karen E. Klein. Edited excerpts of their conversation follow.

Karen E. Klein: Your study documents a 27 percent decrease in consumer fraud from 2009 to 2010 and an even bigger decrease in fraud, 45 percent, for small and midsize business owners. Why did the fraud rate drop last year?

Philip Blank: Just as a general rule: As the economy drops, the fraud rate increases, and as the economy increases, the fraud rate decreases. So part of the decline is due to increasing sales and GDP in late 2010. Part is unfortunately due to the fact that some small and midsize businesses closed during the economic downturn.  But there’s also been improved education about credit-card fraud, and the larger small companies are instituting best practices in line with payment card industry compliance and tighter regulation. There was also a decline in existing card fraud, which small businesses are about 50 percent more likely to suffer than consumers.

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