Types of Business Frauds to Lookout For

business frauds

Running a business takes a lot of effort and a keen eye for social security. Along with the benefits of having your own business, fraud is one of the red areas of any business. Every business person has to be very active to avoid the different types of scams. Research has proven that the businessman loses almost 4.8% of the financial revenue and can add up to a large sum annually. To stay on the safer side, you must know the common types of fraudulent acts. This article covers the top nine common business frauds.

1. Identity Theft

Risk of identity theft is one of the most common business frauds. Hackers hack your personal information like name, address, bank account details, credit and debit card pins, etc., to use them for profit. If you see any unexpected transactions or stop receiving email updates, you may contact the bank to freeze your accounts and secure your personal information.

How to avoid it: Keep your personal information restricted and change your passwords monthly or biyearly to avoid such fraudulent activities. Moreover, keep an eye on your bank statement so you can get to know your transaction details. A proper identity theft prevention program shall also be attended to know the precautionary measures. 

2. Data Theft

Other companies can use your company’s secrets by getting access to company data. It is the most dangerous type of business fraud. Your competitors can access your tricks and plans for generating revenue, which can badly affect your company.

How to avoid it: Do not share your secrets with all the employees of the company. Keep your circle small to avoid any such data theft fraud. Moreover, do not expose your plans before executing them.

3. Payroll Fraud

Payroll fraud varies in terms of its nature. Employees may not work properly during office hours but pretend to be working even overtime. Moreover, employees may ask for an advance salary but flee away without even informing. An employee may be asking someone else to mark their clock in and out. Payroll fraud badly affects small businesses because small businesses cannot afford high-security checks through biometric verification or expensive attendance software online.

How to avoid it: A business owner should strictly check every employee from the date of their joining to be alert every time and not even think of doing any such business fraud.

4. Skimming Fraud

Skimming fraud occurs when an employee takes money from a customer but does not enter the details in the company’s profile. An owner might be thinking that the customer is not interested in the company. Still, he could be unaware that the financial handling employee already took the money and kept it himself instead of adding it into the company’s account.

How to avoid it: The best way to avoid skimming is to keep a final check-in in your hand. The owner must sign the final document of the copy of the transaction before processing it. Every customer should know that owner’s signature and stamp is mandatory for the transaction to be processed. Moreover, the financial handling employees should be on rotating shifts, so no one can dare get involved in any such business fraud.

5. Health Insurance Fraud

Companies try to benefit their employees by providing them with health insurance. The health insurance policy varies from company to company. Few companies offer insurance to the employee only, but others offer it to the family (mother, father, spouse, and children). Unfortunately, few employees try to take ill advantage by getting free medical aid for their friends and relatives by using the identity cards of close family members. Moreover, a few employees also get involved in getting false prescriptions and reports to get financial benefits.

How to avoid it: The best way to avoid such business fraud is to check every health insurance transaction strictly. A business owner must ask for authentic prescriptions and reports, and in case of doubt, he must talk to the relevant doctor for clarification.

6. Return Fraud

Companies offer refund and exchange policies to facilitate their customers, but few people try to take an ill advantage by false returns. Some people apply for a refund after using the product or breaking it at home, and others use stolen products to be sent back to the companies showing it to be the company’s property.

How to avoid: Companies must have a proper refund and exchange policy. A proper record of each sold product should be maintained to avoid return business fraud.

7. Receipt Fraud

Receipt fraud comes under a false payments scam. Receipt fraud comes under financial fraud. Companies have specific shops from where they buy the products. Few employees may befriend the sales representatives and make fake receipts doubling the rates of the products. This can badly affect the company because the business owner might be thinking that the inflation rate has increased, but he might be unaware that his employee is keeping the rest of the amount in his pocket.

How to avoid it: The best way to avoid it is to check the purchases. If a business owner suspects something, he must visit the market to know the rates and counter-check it from his own company’s buying receipts.

8. Forgery

There are different kinds of forgery, but the worst among all is the copy of your signature. An employee might use your signature to sign an important document or a blank check to steal money from your account. Moreover, an employee may take any product from the company without informing the business owner and uses it for himself or sells it in the open market to receive a profit. Forgery also covers fake check scams. 

To avoid it: The business owner shall not trust every employee to access his office where all his important documents like files, projects, and checkbooks are placed.

9. Bribery

Bribery is a silent fraud prey. It can badly affect the company’s reputation. An employee might be taking a bribe to do the work illegally under the company’s name. An employee might be accepting invites that can affect the company badly.

How to avoid it: The best way to avoid bribery is to keep strict rules regarding it. If you ever find someone guilty of bribery, make him an example for others to learn that the company will not tolerate this act at any cost.

Business fraud acts affect all businesses. A business person should know and fight against fraud. Company culture should be developed that should highlight the punishment of all common schemes used for business fraud. 

What are the most common frauds in small business?

The most common scams are :

1. Investment Scam
2. credit card fraud
3. Fake charities 
4. Check fraud
5. False payments
6. Fraudulent transactions 

Types of employee frauds?

1. Bribery
2. Forgery 
3. Return fraud
4. Health insurance fraud
5. Payroll fraud

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