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Know About the Types of Frauds in Business


Business fraud can have a big impact on any company regardless of its size. If you are a business owner, then you may have heard about the types of frauds in business and these may sometimes seem unavoidable. Especially, sensitive accounting information can give any business owner sleepless nights. Handing over the accounting information to unknown 3rd party sources can pose a serious threat of exposing business secrets. However, not all 3rd party sources are a threat but it is quite hard for an entrepreneur to have a balanced attitude toward them. Business frauds are just a kind of virus that has to be removed from its roots to eliminate frauds completely.

What is a Business Fraud?

A business fraud simply refers to the crimes committed by high-ranking or senior employees in a business. It involves someone stealing valuable financial information from someone else under the disguise of dealings in business.

Types of Frauds in Business

According to a survey conducted by ACFE, small business fraud is more common. Most small -businesses are impacted by frauds when compared to large businesses. Whether customers or employees, these are only a few who may take advantage of your business. The point is to recognize the fraud and take steps to protect yourself.

Let us take a look at some of the types of frauds in business that you can face:

1. Identity Theft

This is one of the most complex and biggest frauds in business. It is because a business can either be a victim or a perpetrator. In this fraud, someone steals your personal information from a party and uses their information to do fraudulent activities like stealing. Expert fraudsters use this information to open a new line of credit and make purchases with their credit cards, thereby committing crimes under false identities. As for a business, it can commit this theft by stealing bank account information. Moreover, employees having sensitive data may use it to steal from other businesses. There can be many scenarios, which is why it is essential to protect your cyber ecosystem. Always use encrypted personal data and keep up with your virus updations.

2. Asset Misappropriation

This kind of fraud is quite common and is very easy to commit. Asset misappropriation simply means stealing from an employer deliberately. Now let us discuss about a couple of its categories:

  • Cash Misappropriation – Committing theft of stealing money from the employer, whether it is transferring funds from the firm’s bank account or directly taking money from the safe comes in the cash misappropriation category.
  • Non-Cash Misappropriation – This type of theft comes under stealing of non-cash assets from the firm. It could include stealing office inventory and equipment without being authorized.

In order to prevent asset misappropriation, you should log or record the financials including detailed inventory and prove any losses. Another step that you can take is to partner with your bank so as to negate any unauthorized transactions. In addition to that, you must have a talk with your bank regarding the different programs that fully safeguard your business from such incidents.

3. Corruption

Another one in this business frauds list includes “Corruption”. It is basically a blanket term for a plethora of frauds. This fraud usually happens when someone in a position of power in a business deliberately engages in a dubious/dishonest behavior, or even mishandles funds, then it comes under corruption. Some most common examples include- laundering money, taking bribes, carrying out unreported transactions, etc.

There have been instances where business owners themselves become corrupt when seeking more money without even thinking about its consequences. However, such incidences are quite rare but happen. Therefore, any business employee should be observant all the time. You must report business fraud so that it gets investigated thoroughly by the IRS.

4. Payroll Fraud

One of the most common schemes in businesses as opposed to high-scale companies is the Payroll. You can find several ways by which payroll frauds can happen. In most companies, employees ask for advance payments without having any intention to pay back, or they simply lie about their working hours. Moreover, they could clock in their colleagues in case they are absent or haven’t done their work. In addition to this, you can also conduct background checks on the employees before hiring. Auditing payroll accounts can be highly beneficial so that you can identify and catch any fraudulent behavior sooner. You could also hire the best payroll service providers before paying employees, thereby keeping track of their hours within your system. It is always better to be proactive beforehand so as to avoid any mishap at your workplace.

5. Financial Statement Fraud

There are many different reasons when a business owner or an employee may commit financial statement fraud. This mostly includes the manipulation of financial records in order to make their net worth or assets seem greater than they really are. Moreover, there is a chance that they can show fake losses or debts. However, this type of fraudulent activity is typically carried out for the purposes of securing loans. At other times, the employee seeks loans just to steal the money. Whatever be the case, this type of fraud in business is quite serious. Therefore, you should pay attention to any activity that seems dubious or suspicious and react instantly without waiting. Additionally, you must look out for any suspicious email or network activity and immediately seek help to remove any systems that may have been compromised as a result.

6. Return Fraud

Any business that is into selling goods must’ve experienced return fraud at some point. Return frauds can be of different types. There are instances when a customer purchases a product, uses it, and then returns it even if it works fine and has no manufacturing defect. Or there are other fraudulent activities in which the products are stolen from you and then attempted to return them so as to make a profit. It may be difficult to completely clear out return fraud, but it can be limited if you have the appropriate policies. These types of frauds in business can be prevented by upgrading your policies so that the customers only get store credit after some time. You may think about your customers’ satisfaction first, but you also don’t want to lose money on return frauds either.

End Note

Agree or not, but a business fraud is actually a very serious problem. It doesn’t matter if the crime is committed by a business is the leader or a victim, it’s vital for everybody working in the company to be vigilant. The best way to protect a company from fraudulent activities is to first properly understand the risks as well as upgrade your policies and preventive measure alike. This way may not fully guarantee security, but make the intruders a very hard time for sure.


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