When you think of business fraud, you may picture headline-grabbing stories about big corporations. The fact is, however, any business can be the victim of fraud. Small businesses could be more likely to experience fraud as owners and managers might not have systems in place to alert them of potentially fraudulent activity. Even if they have such systems, they may not pay close attention to them or know what exactly to identify. In addition, most business owners have a plethora of responsibilities they must manage and may not maintain oversight over their financial issues. 

This makes small businesses and startup owners vulnerable to a variety of fraud. One of the most common in businesses is the theft of cash. Businesses that handle a lot of cash — such as those in the retail and restaurant industries — may be particularly at risk. Cash can be stolen in different ways: 

• Skimming refers to the taking of cash that hasn’t been reported by an employee.
• Larceny is when cash that has been reported is taken by an employee. Releasing funds to a third party without the owner’s knowledge or consent is called fraudulent disbursement.
• Dishonest employees may also use false invoicing to steal cash. The employee fabricates a supplier and then pays the supplier, pocketing the cash, or claims to have paid an actual supplier but instead directs the payment into an account that he or she can access.

Payroll fraud is seen more frequently in smaller businesses than larger ones. Payroll fraud includes timesheet fraud, where workers falsify their timesheets to get paid for hours they didn’t work and altering pay rates to receive more money than they should. Another type of fraud occurs when an employee receives an advance and doesn’t repay it.

The popularity of online banking has made small businesses easier targets for online fraud such as transferred funds to the wrong accounts. Like any business, they are also susceptible to spoofing and phishing frauds. Phishing emails pose as legitimate websites that ask for credit card numbers, Social Security numbers or other personal information. Spoofing emails pretend to be someone you know and ask for similar information, or to transfer money directly to the person. 

For example, a business may receive an email with an invoice that appears to be from a legitimate supplier or vendor and may pay that invoice without realizing it is a spoofing scam. The accompanying resource describes more about these common types of fraud and how to reduce your risk of them.

Infographic created by MBS Accounting Technology & Advisory Bookkeeping

By Jeremy Zielie