10 Types of Business Fraud to Lookout For
As a business owner or professional, you need to worry about sales, operations, and management. However, you also need to be aware of common types of fraud that can plague a business and damage your credibility, reputation, and financial position.
Business Fraud Prevention
Make business fraud prevention part of your regular management strategy, and hopefully, you won’t have to worry about the consequences of these crimes. Ten types of business fraud to watch out for include:
1 – Data or Intellectual Property Theft
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. Without proper access control, employees could steal and sell this information for profit.
2 – Asset Fraud or Skimming
Along with your intellectual property, customers, vendors, and employees may try to skim off the top or steal goods. As part of your business fraud prevention plan, take inventory of stock items regularly, and consider installing surveillance cameras to monitor for any theft.
3 – 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. Put a system of checks and balances in place to ensure accurate payouts for all employees.
4 – Fake Invoices
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. Double-check every invoice against the purchase order and verify the goods or services are real.
5 – Financial Statement Manipulations
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. Again, a system of checks and balances will help avoid this problem.
6 – Insurance or Bank 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. Request independent medical examinations (IME) to ensure that any employee hurt on the job is actually injured and deserves benefits.
7 – 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. Always file your taxes on time and prepare them correctly.
8 – Bogus Returns
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. Offer in-store credit rather than cash refunds to avoid this type of fraud.
9 – Counterfeit Money
Fake money looks very much like the real thing. Train your employees to spot counterfeit cash and consider purchasing a counterfeit money detector to be sure.
10 – Corruption or Bribery
Another type of fraud to watch out for is kickbacks from vendors, skimming, or other corruption tactics used to manipulate people within your organization. Make background checks and compliance policies a significant part of your business fraud prevention plan to avoid it.