Major Forms Of Business Fraud That You Need To Watch Out For

Jacqui Coombe

Businesses need to be ever-vigilant against fraud, because there is a staggering array of tools and techniques available to attempt fraud, and they can target businesses of all sizes. In fact, while it tends to be fraud targeting the largest companies that make the news (because it’s often so sensational), it’s the smallest companies that are at risk of fraud, and tend to suffer the greatest percentage losses.

So, what are some of the most common examples of fraud, and how can a business make moves to protect itself?

Investment Fraud: This might seem like an obvious one, but it happens more often than you might think, and can be more difficult to spot than many assume. Investment fraud occurs when a seemingly incredible opportunity comes along. All the business or business leader needs to do is invest in it. Perhaps it’s a crowdfunding campaign. Perhaps it’s a new crypto project. Many – if not most – of these projects are legitimate, so it’s easy to assume that this new hot opportunity is too. But once the money is invested the people behind the opportunity up and disappear, leaving the business or individual out of pocket and potentially even liable.

Full due diligence is the only way to protect yourself from this kind of fraud. Look at the history of the founders and the business plan. Don’t allow yourself to be drawn in purely by the promise of the opportunity.

Payroll Fraud: It’s almost certainly the most likely cause of fraud that you need to watch out for. With payroll fraud, someone who has access to the payroll system will submit false timesheets, or issue unauthorised bonuses, or possibly even send money to a fake employee.

Given that your payroll system is probably done via online platforms now, it is relatively easy to monitor where the money goes and track who authorises payments. For larger organisations (where it is unlikely that you know the names of every employee), having anti-fraud and cybersecurity software installed is a good idea too.

Tax Fraud: This is one that the higher-ups will be more likely to commit. With tax fraud, a company owner, director, or senior executive will pressure the accountants to downplay business ownings or claim false deductions (or they’ll do it themselves). The goal is to reduce the taxable income of the business and potentially access support from the government. For example, tax fraud was a real concern when the government was making stimulus payments to companies to hold on to their employees through the COVID-19 pandemic. The condition was that the company experienced a drop in revenue from the pre-pandemic norms, so the worry was that businesses would massage the books to make it look like they qualified.

Worker’s Compensation Fraud: This is a fairly common example of fraud, whereby an employee will either get injured outside of work and try and claim it was a workplace injury, or they will simply make up an injury entirely.

This is a form of fraud that frequently makes TV and movie plots and results in private detectives and all kinds of drama. In reality, it’s much easier to protect your business against this. Maintaining meticulous documentation and having a robust OH & S policy for making compensation claims are essential to making sure that you don’t come across as an easy mark.

Identity Theft: If someone has enough information about a person or business, they can commit identity theft, ranging from the personal (for example, taking out a loan or signing up for a credit card under another person’s name), to the business (making purchases using a business’ banking details, or issuing and getting paid for fake invoices). It’s also possible for a business or a person within a business to be behind identity fraud. For example, businesses collect a lot of data on their customers – including credit cards and potentially bank details, and an employee might make fraudulent orders using those details.

Properly protecting data is essential. Within the organisation, only the people that must have access to sensitive information should do so, and businesses should not collect, much less publish more data about their employees than absolutely necessary.

Corruption: Finally, there’s the risk that a business might become involved in corrupt practices, which can range from everything from money laundering to doing business with nations under sanctions to conducting business with criminals, accepting bribes (or making them), and manipulating elections. Corruption is a “catch-all” type of fraud activity, and the best defense to it is to keep an eye out for suspicious activity, and not try and hide it internally – immediately report it to the authorities.

Businesses can be victims and perpetrators of fraud. Both are damaging, incurring massive financial costs, reputational damage, and, potentially, criminal prosecution. Vigilance, backed by technology best practices and ongoing education of the workforce, so they understand that your business has a zero tolerance approach to fraud, is the best protection against fraud in either direction.

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Jacqui Coombe has been a prolific reader since childhood, and now channels her love of the written word into writing content on a range of topics from business, marketing and finance to travel and lifestyle.

Santa Monica, CA
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