Identity Theft Protection for Small Businesses: A Step You May Be Missing

More than $8 billion dollars was stolen from small businesses through identity theft in 2008 according to Javelin Strategy & Research of Pleasanton, California. Small business identity theft continues to outpace individual identity theft at a rate of 4.1 percent in 2010, compared with 3.5 percent for consumers.

Small businesses are suffering because thieves know they don’t have the resources, including time and money, to put up a strong defense to protect their information against a data breach. Thieves have developed sophisticated techniques to steal private information from the smallest businesses to the largest corporations.

Michael Barnett of the Identity Theft Protection Association says small business identity theft is a growing problem. “Thieves have discovered that companies have fewer legal protections.” Cybercrime and identity theft is a much more likely loss to businesses than fire or flood.

Most of the time, organizations will never recover their losses because they have less fraud protection and a shorter reporting time, a business is not a “person” or a “victim” so state and federal laws treated differently, business transactions with personal cards are excluded from “zero liability,” and personal identity theft insurance and services are excluded from businesses.

For most owners, their personal and business information is closely linked, so a data breach can seriously affect both the owner and their business. A single serious incident could wipe out a small business. It is important to maintain a vigilant effort to protect your personal and business information.

There are many things a small business should do to protect its information, including checking bank account and credit card balances daily, checking account statements when they arrive, running a regular credit check with credit bureaus and Dun and Bradstreet and regularly change passwords used to log in to areas where private information is stored. Employees must receive training on what can and cannot be shared with people outside the organization, and strict rules must be put in place to limit the chances of theft.

There is one more step of identity theft protection that most small businesses overlook and could cost them dearly.

One of the schemes thieves use is information from registrations with state governments. Most states are “bona fide filing” states, meaning that information filed about a business or organization with the Secretary of State is simply accepted and recorded verbatim. For $10 to $15 in most states, thieves can easily file a change of address, change of officers, directors or registered agent, or even reinstate a previously dissolved company. They can also register a company as a foreign company that operates in a different state than their target company.

By manipulating state records in this way, thieves can obtain the permanent, verifiable records needed to deceive creditors and financial institutions, or perform any number of fraudulent transactions on the company’s behalf.

One step that may be missing to prevent small business identity theft is to check your state’s registration information. There are three things every landlord can do, in no time at all, to prevent or limit the impact of fraudulent state registrations and identity theft:

1. Sign up for email alerts: Check to see if the Secretary of State or Division of Corporations business registration website offers free email alert services that can notify the owner when their registration information has been changed or updated. This information includes: name, address, registered agent, and business owner information. Signing up for such a service can provide an early warning of potential small business identity theft.

2. Regularly Check Your Registration Information Online: If your Secretary of State or Corporate Division does not offer email alerts, you can go to their website and use the public “Business Entity Search” to review the information on file. You should also periodically check on any previous businesses that have gone out of business, to make sure they haven’t been reinstated.

3. Be sure to submit your annual reports and renewals in a timely manner.

Small business identity theft is the new target for identity thieves. Identity thieves feel quite safe as only one in 700 is caught. So when you weigh the risk against the reward, most of us can see why criminals turned to small business identity theft.

The challenge for all businesses, small or large, is to implement security measures to protect against breaches before they happen.