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Business/Commercial Fraud Schemes

You are the first line of defense in protecting your company from fraud.

Business/Commercial Fraud Schemes

What to Know About Fraud Threats

Your business faces threats that could compromise your bottom line. That’s why business owners should know what types of fraud to look for before it’s too late.


Why Employees Resort To Fraud

Employees that attempt to steal from their employers often do so when a combination of four factors exists:


  • Motive: There is a perceived need to meet a critical financial need, such as a family illness, excessive debt or a gambling problem.
  • Means: Special skills or access puts the employee in contact with cash or assets.
  • Opportunity: A lack of firm internal controls of assets or a refusal to put such safeguards in place, relying on the honor of its employees, leaves money at risk.
  • Justification: Convinced that their employer owes them something, the employee rationalizes the fraud. The employee may also believe that they’ll return the money later.


4 Fraud Schemes That Threaten Your Business

There are many ways that employees may try to defraud an employer, working either alone or with a non-employee. Here are four of the most common categories of fraud that might be a threat from people inside your company.


1. Payroll scams

Employees can use payroll fraud to scam you for money in many different ways. They might ask for pay advances without repayment. Employees might also lie about hours worked on their timesheets. They could also get co-workers to clock in for them even if they aren’t at work.


Background checks could help you catch prospective employees that could be a problem later. Also, audit payroll accounts so you can catch fraudulent behavior early on.


2. Theft of cash

Access to cash is a powerful draw for some employees. Most frequent when cash exchanges are common, this type of fraud covers:


  • Stealing cash
  • Skimming sales and pocketing the cash
  • Return fraud in collusion with a customer


Monitor your cash flow carefully, and let employees know you’re doing so. That way, employees don’t get the idea that cash is unprotected. Put more effective controls, such as segregated duties, and reviews of cash in place.


3. Expense reimbursement fraud

Also called expense fraud, this type of fraud includes:


  • Forging receipts
  • Double claiming for expenses
  • Submitting false claims
  • Inflating expense claims


Fight expense reimbursement fraud with solid procedures. A formal reimbursement process can catch problems early, especially if the process is automated. Companies should also limit the use of personal credit cards for business expenses, as those are harder to track.


4. Invoice fraud

False customer accounts can be used to generate false payments. Vendors, too, can be part of this type of fraud.


Also included are:


  • Altering details on checks and reimbursements
  • Self-authorizing payments on invoices
  • Conspiring with others to process false claims


Accounting staff should be trained on the best practices for invoicing and payments. Make sure they don’t feel pressured to act quickly without double checking invoices. Flag any inconsistencies.



How Businesses Should Address Fraud

Businesses should fight fraud with a clear companywide policy, signed off on by all employees upon hiring.


Employers developing this policy should:


  • Verify that anti-fraud practices are followed and fraudulent activity is detected
  • Develop written procedures that dictate work processes in critical areas
  • Institute checks and balances and divide key responsibilities


By instituting protective procedures, companies will save themselves not just the loss of money but the headaches that follow.

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