For business owners who have worked hard to make their dream of owning a business into a reality, business fraud can turn that dream into a nightmare. Fraud costs companies billions of dollars each year, and small businesses share heavily in those losses. In fact, a study conducted by Veriff showed that 90% of respondents reported as much as 9% of revenue lost as a result of fraud. At Perry & Associates CPAs, our talented forensic team is on a mission to detect fraud and help our clients take smart steps to not fall victim to fraud scams. Learn more about the top 10 types of business fraud and how to keep your business safe.
10 Most Common Business Fraud Cases
Payroll Fraud
Payroll fraud makes up about 9% of occupational fraud worldwide. Small businesses have a high risk of falling victim to payroll fraud if they do not have anti-fraud controls in place. There are also many ways that payroll fraud can occur. One example is when employees manipulate the payroll system by logging false hours, therefore getting paid for work they did not do. Another type of payroll fraud can occur when a commissioned employee reports false sales or orders. To prevent payroll fraud, we recommend implementing strong internal controls, regular audits and digital attendance systems. It’s also important to have supervisors or managers review timesheets on a regular basis.
Workman’s Compensation Fraud
Small businesses are required by law to provide workman’s compensation insurance for their employees’ benefit, however some employees have been known to cheat the system for profit. Examples of workman’s compensation fraud include exaggerating an injury (or completely fabricating an injury) or claiming an injury happened at work when it did not. To prevent this, make sure your employees work in a safe environment, educate your employees about the claims process and have strict disciplinary policies for fraudulent activity.
Wire Transfer Fraud
Wire transfer fraud takes place when fraudsters attempt to trick an organization into wiring funds into unauthorized or fake accounts. This can include impersonating a high-level executive at a company via email or pretending to be a supplier. Implement multi-step verification for all wire transfer requests, have team members verify that any requests are being sent by the alleged sender and begin integrating fraud detection software if necessary to prevent this form of fraud from happening at your business.
Check Tampering
Check tampering occurs when an employee manipulates company checks for personal gain. One of the most common forms of check tampering occurs when an employee writes checks to fake payees and then works with those businesses to get the money. Another example is when the payee name on a legitimate check is altered to redirect funds, or when someone forges the signature of an authorized check signer at a business. Protect yourself from check tampering fraud by having more than one person check the company’s finances and having the business owner sign each check personally.
Invoice Fraud
Invoice fraud is a type of business fraud that occurs when a scammer creates counterfeit invoices for goods or services that were never provided. In some cases, businesses pay these invoices without thinking or checking that the purchase was actually made. It also happens when vendors or employees inflate invoice amounts beyond what was agreed upon or submitting the same invoice multiple times to receive duplicate payments. Prevent invoice fraud by having checking each invoice received very carefully and match up to products and services rendered, requiring multiple approvals for high-value transactions, segregating duties so that no single person handles the entire invoice process and conducting regular audits.
Vendor Fraud
If your organization works with a variety of different vendors, you’ll want to stay on the alert for vendor fraud. Vendor fraud occurs when a vendor overcharges, or bills for services not rendered. It also happens when an employee creates a shell company and then pays their shell company with business checks from their workplace. Avoid vendor fraud by researching and vetting all vendors before signing a check and implementing a vendor management system, verify invoices and perform regular vendor reviews.
Asset Misappropriation
Asset misappropriation occurs when an employee steals or misuses company resources such as inventory, cash or equipment. Make sure you secure all valuable assets at your business and consistently monitor inventory to avoid this type of business fraud.
Bribery
Bribery occurs when an employee accepts offers or bribes to influence business decisions, such as accepting kickbacks from a supplier in exchange for a contract. Prevent this from happening at your business by establish a clear code of ethics and training employees on anti-bribery policies. Creating an anonymous reporting channel for anyone that notices this type of behavior is also an effective step.
Investment Fraud
Investment fraud is when an organization misrepresents itself in order to solicit funds from investors. Make sure to conduct thorough background checks on investment opportunities and verify regulatory compliance.
Revenue skimming
Revenue skimming is a type of fraud that most commonly takes place when cash is given by customers at a business. It occurs when customers pay cash for an item or service and the employee collects the cash from the customer and pockets it. One way to protect your business from revenue skimming is to segregate and rotate employee duties, implement surprise audits and use a point-of-sale (POS) systems that automatically track sales and issue receipts for all transactions.
Remember, it’s far safer and effective to prevent your business from fraud than to pick up the pieces after business fraud has occurred. If you suspect fraud at your organization, make sure to contact our forensic team as soon as possible, who have experience in identifying fraud in areas such as embezzlement, money laundering, illicit funds, hidden assets, bribery schemes and more. Protecting your organization is our passion!
