7 Fraud Prevention Tips for Real Estate Companies

Fraud prevention is crucial for safeguarding real estate companies from financial and reputational damage. But fraud prevention does not need to involve complex systems or expensive technology.

The following outlines seven essential strategies to proactively protect real estate businesses and their stakeholders from fraudulent activities.

1. Strengthen internal control

Strong internal control is the foundation of fraud prevention. By establishing a system that separates key responsibilities and establishes oversight, real estate companies can reduce the opportunity for fraudulent activities.

• Segregation of duties — No single individual should have control over all aspects of a financial transaction. For example, the person who approves payments should not be the same person who records them.
• Reconciliation — Regularly reconcile accounts and financial statements to quickly spot discrepancies. Unexplained variances can be red flags that require investigation.
• Approval procedures — All transactions, particularly those involving large sums of money, should go through an approval process that requires multiple layers of review.

2. Monitor transactions regularly

Fraud can go undetected for long periods if no one is monitoring transactions. By regularly reviewing transaction records, real estate businesses can spot unusual patterns that may indicate fraud.

• Monitor bank accounts — Regularly monitor bank accounts for unusual activity to detect potential fraudulent transactions. This includes reviewing bank statements and transaction reports for substantial amounts not recognized or for repetitive payments to the same vendor. Transactions alerts can be enabled for transactions over a certain threshold or for unusual spending patterns.
• Data analytics — Implement software that can flag irregular activities in real time, which would enable swift action if fraudulent behavior is detected.

3. Vendor and customer vetting

Fraud can occur through external partnerships. Real estate businesses should properly vet both customers and vendors before engaging in any financial transactions.

• Vendor verification — Confirm your vendors are legitimate by verifying their tax identification numbers, business licenses, and references.
• Customer credit checks — For businesses that extend credit, a thorough credit check can prevent future fraudulent activity and bad debts.

4. Implement strong password policies

Cybercrime is one of the most prevalent forms of fraud today, and poor password management is a common gateway.

• Multi-factor authentication — Requiring employees to use two or more verification methods when logging into sensitive systems may reduce the chance of inappropriate network access and fraud.
• Password management tools — Passwords should be complex and changed routinely. Encourage the use of password managers to help employees create and securely store complex passwords.

5. Limit access to sensitive information

Role-based access control should be implemented to restrict sensitive data to only those who need it to perform their job functions.

• Access logs — Maintain access logs to sensitive data to identify any unauthorized attempts to view or alter information.
• Physical security — Store sensitive documents and files in secure locations, with access only granted to authorized personnel.

6. Employee education

One of the leading ways to prevent fraud is to train your employees on how to recognize it. Many instances of fraud can be avoided if employees are able to spot suspicious activity early on.

• Regular training — Hold annual or bi-annual training sessions on common fraud schemes, like phishing attacks or invoice fraud.
• Whistleblower policies — Encourage employees to report any suspicious activities without fear of retaliation. Companies can implement an anonymous reporting system for team members to feel safe raising certain concerns.

7. Perform regular audits

Regular internal and external audits can serve as both a preventive and detective measure against fraud. By reviewing operational processes, transactions, and financial statements, real estate companies can identify weaknesses in their fraud prevention strategies.

• Be comprehensive — Include financial statements, processes, and controls in the scope of the audit.
• Involve third parties — For unbiased evaluation, engage external auditors or specialists to review your organization’s operations.

How CLA can help you protect against fraud

CLA can offer a comprehensive suite of services designed to help real estate businesses prevent fraud and protect their assets. By leveraging CLA’s expertise and resources, real estate companies can establish robust fraud prevention measures to support long-term protection and peace of mind.