5 Most Common Fraud Scenarios for Small Businesses; running a business is quite a task in itself. A business owner needs to manage day to day business operations, deal with various clients and supervise employees.However, what makes it even harder is the fact that small businesses are more prone to fraud attempts. In every organization, there are some troublemakers who often try to get monetary or non-monetary benefits through unethical means.
It’s a prevalent myth that small businesses face lesser risks of fraud attempts, since business owners can monitor and manage resources with ease. Moreover, the employers and the staff are in a close-knit relationship, which is why it’s easier to identify a dishonest employee.
However, fraudulent activities are relatively more common in small businesses.Survey reports suggests that businesses with less than 100 employees end up losing around $154,000every year. Many small businesses die within a year or two, due to the losses. The alarming statistics depict the importance of protective measures.
It isn’t easy to prevent fraudulent activities in small businesses due to lack of resources. They cannot implement advance internal control systems to closely monitor their financial operations. In the absence of effective security measures, vendors, employees and customers can take advantage. Small businesses are vulnerable to a variety of frauds. Here are the most common types of frauds that can destroy your business:
1. Identity Theft
Be it a large corporation or a small business, it’s essential to protect the identity. Fraudsters can rip off the finances of a company and destroy the reputation of a business if they get their hands on confidential information. Business owners must keep bank statements, financial statements and tax returns at a safe place so that unauthorized users cannot steal private information.Before throwing away any business documents, shred them.
Nowadays, most businesses store data in digital form. Make sure your systems are secured to prevent any hacking attempts. For this purpose, install cost-effective security solutions, anti-malware applications and firewalls.For official email accounts, set strong passwords that are difficult to crack.
Small businesses can prevent identity theft by spreading awareness about phishing scams. Phishing is a common form of cyber-attack that is used by scammers to get confidential information. These emails clone a webpage and ask users to log in to their accounts. With this information, they can take control of user accounts and inject malware in the system, causing your services to crash.
2. Accounting Fraud
Accounting fraud is one of the biggest concerns for small businesses. Employees may find some ways to tamper with payrolls. Keep an eye on payroll process to prevent any losses. Also, internal audit can help you identify any fraud attempts in employee payrolls.
Another common technique used by employees of small businesses is to take loans or advances on their pay. Keep track of their advances to ensure that you do not overpay your employees. Employees may also attempt to lie about their working hours. Small businesses must install modern systems that keep track of their arrival and leaving time.
Employees of small businesses often steal money. Cash larceny is a common scenario in which employees take cash before it can be deposited in company’s account.
Small businesses should also take protective measures against check tampering attempts. Employees may forge signatures or modify details on bank checksin an attempt to illegally withdraw cash from company’s accounts. Therefore, company’s checkbooks must be locked ata secure place. Monthly bank statements should be carefully reviewed to ensure that there are no unauthorized transactions.
3. Workers’ Compensation Fraud
If an employee gets injured at workplace due to unsafe working conditions, the company is held responsible. They have to pay a hefty sum to the injured employee in order to make up for their loss. Employees may exaggerate the extent of their injury.Some employees get hurt due to their own negligence and claim that they got injured at the workplace.
In order to protect your business from fake compensation claims, you must get in touch with your attorney. Thorough investigations must be carried out to verify the claim. You can ask other workers to share firsthand information about the incident. Also, implement safety measures beforehand, in order to provide a safe working environment for your employees.
4. Reimbursement Expense Fraud
A majority of employees at small businesses commit reimbursement expense fraud. It is one of the simplest forms of frauds.Many companies compensate their employees for outdoor work-related expenses. All they need to do is to present bills and the company makes the payment.
Small businesses can control this fraud by enforcing a strict reimbursement policy. In the audit process, the documents must be thoroughly inspected before releasing funds.
5. Non-Cash Fraud
Aside from cash, small businesses also need to protect their non-cash assets. Some employees are involved in theft of office supplies and equipment. Keep an eye on your inventory to reduce financial loss.
In a small business, intangible assets such as business ideas and business plan are also at stake. If any employee gets their hands on these documents, they may use your ideas for their own benefit.Also, never share the information with anyone before you have obtained the copyrights of the business idea.
Small businesses usually underestimate the risk of fraud. However, it is essential to take preventive measures that can reduce the risks. Many business owners do not take preventive measures, since it may depict that they don’t trust their employees. However, it is a proven way of protecting business from unexpected losses.