Types of Business Frauds: Prevention and Detection

As a business owner or professional, you need to worry about sales, operations, and management. Fraudsters are embracing more creative and sophisticated approaches when targeting their victims. The good news is that much of today's fraud is preventable. Make business fraud prevention part of your regular management strategy, and hopefully, you won’t have to worry about the consequences of these crimes.

Even though you may have policies in place, keeping a close eye on all your sensitive personally identifiable data (PII) and intellectual property or trade secrets is critical. Along with your intellectual property, customers, vendors, and employees may try to skim off the top or steal goods.

Common Types of Business Fraud

Payroll Fraud

Payroll fraud can take many forms, but it often consists of a payroll professional overpaying someone or issuing checks to non-existent employees and cashing them. In addition, staff members may lie about hours or pad their timecards to get extra pay.

Invoice Fraud

Usually perpetrated by an insider, someone in sales or marketing will create fake invoices for goods or services and take payment themselves. They may create a fake company to carry out the ruse or involve family, friends, or co-workers.

Financial Statement Fraud

Financial statements are meant to represent a company’s financial position. However, it is not uncommon for someone to inflate revenue figures or omit expenses to make the company look profitable when it is not. Typically, this is done to fool investors or affect other payouts.

Workers’ Compensation Fraud

Workers’ compensation fraud occurs when an employee is hurt on the job (or fakes an injury) and is paid benefits through the WC insurance plan. It could increase your insurance rates and cost you money if this happens.

Tax Fraud

Tax fraud occurs when someone preparing the tax returns misrepresents figures to avoid paying taxes to the IRS. This type of fraud can have dire legal consequences, and you should avoid it at all costs.

Return Policy Abuse

If you are a retail operation, you may offer a return policy. However, some customers may lie about merchandise, fake defects, and even try to return stolen goods using bogus receipts.

Counterfeit Currency

Fake money looks very much like the real thing.

Kickbacks and Corruption

Another type of fraud to watch out for is kickbacks from vendors, skimming, or other corruption tactics used to manipulate people within your organization.

Check Fraud: A Persistent Threat

Despite continued warnings that checks are the most popular target for fraud, checks still play a significant role in business transactions. According to the AFP, 63% of organizations reported experiencing check fraud. But not all check fraud schemes are created equal.

Because Samara is the single point of failure in the example above, the business suffers an unrecoverable financial loss. In addition, businesses have far fewer protections against fraud than consumers. Businesses have limited fraud protection and short response windows-often as little as 24 hours-with no guaranteed recovery for unauthorized checks, ACH debits, wires or digital payments.

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