Protect Your Business: What Are the Common Fraud Schemes Nowadays?

The Association of Certified Fraud Examiners states that companies lose about 5% of their financial revenue because of fraudulent activities. While 5% may seem too small to worry about, it grows bigger. In fact, data shows that the yearly loss of businesses worldwide costs $3.7 trillion, not including the other costs brought by fraud, like its effects on company morale and negative reputation.

The first step in avoiding fraud is to recognize what it looks like. Listed below are the common types of fraud entrepreneurs should be wary of.


Payroll Fraud

A company may experience payroll fraud in various ways, but in most cases, this happens so an employee can get higher pay. Some employees may request advance payments without any intention of repaying them. Other workers work together by faking their attendance records, like clocking in and out a colleague to avoid being marked absent.

Studies show that payroll fraud can significantly affect small businesses because they often do not possess anti-fraud systems.

So how will you avoid this? Make sure to thoroughly background check applicants before hiring them. If possible, hire a reliable manager that would monitor attendance sheets daily.

Asset Skimming

Asset skimming is one of the most popular business scams, and it’s also one of the easiest to notice. Here, you need to watch out for missing inventory, forged checks, and accounts that don’t add up. You are also a skimming victim if the act involved taking money from your customers or the company without any transaction records.

The solution here is to rotate your staff that handles cash and divide financial tasks among several employees.

Falsified Documents

Your business might face serious trouble if some employees falsify your legal documents. These documents may include papers for assets, contracts, terms and agreements, and more. This typically happens when the business owner is not hands-on in keeping things in order, so it’s vital to appoint someone to oversee documentation.

If possible, always have a lawyer validate new documents. For example, if you are going to transact with business partners, hire external services such as accountants orĀ SEO marketing consultants, make sure that your contracts and agreements are valid and notarized. Doing so can be a huge lifesaver in case they file complaints.

Invoice Fraud

Invoice fraud schemes typically happen when the culprit (usually an accounting or sales employee) makes fake invoices to get money from the company. This may involve fake invoicing for products or services that weren’t actually purchased, creating a shell company to send money to, or hiring friends and family for over-inflated contracts.

The only way to avoid this is by cross-checking all the company’s invoices with the goods and services bought. Don’t approve any supplier or external services without doing a comprehensive background check on them.

Tax Fraud

Tax fraud, commonly known as tax evasion, is the act of misreporting an individual or company’s expenses and earnings to get lower taxes. Many businesses commit this illegal act in an attempt to keep more money and avoid spending too much on tax obligations. But keep in mind that doing so is a terrible crime, and this is punishable by law.

Avoid tax fraud by ensuring that your financial reports are accurate. Do not exaggerate your expenses and understate your earnings. Believe it or not, you will get caught.

Financial Statement Fraud

Financial statement fraud is the act of dodging valuable numbers like revenues, sales, liabilities, and assets. Commonly, people do this to deceive the public or big investors, increase bonuses, and manipulate the stock. And even though financial statement frauds rarely happen, they can cause severe damages to the business and its reputation.

How to avoid this? Consider delegating different accounting tasks to different employees. Have at least two managers who check the statements to look for incorrect information and inconsistencies before reporting your financial statement.

Banking and Insurance Fraud

Some companies offer health insurance to employees. Unfortunately, some employees would take advantage of this and try to get money from insurance by falsifying claims and lying about illnesses and injuries. This act can result in unexpected expenses and higher premiums, which can cost your business a lot of money.

Be firm with your requirements for filing insurance claims. Double or triple-check the documents your employees submit to ensure their authenticity.

Whether you own a small or big enterprise, all businesses are subject to fraudulent acts. You may fall victim to one of these schemes if you cannot identify odd activities early on. But hopefully, this article enlightened you about the things you need to watch out for.

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