5 Most Common Frauds In Small Businesses

According to recent statistics, 90% of Australian businesses were targeted by some form of fraud attack – including cyber fraud in 2017. 

Fraud happens everywhere, and no business is safe from attack. No matter the size of your enterprise, fraud is a common threat that owners should remain aware of, especially as your business grows and develops.  

Many small business owners encounter difficulty in keeping track of everything, especially with so many demands on their time. Notwithstanding, small business owners should take the time to understand what kinds of fraud they might be at risk of, as well as some strategies to stay on top of potential risks.

Here are 5 common frauds that occur in small businesses:

1. Cash fraud 

Cash fraud is a common threat to small businesses that deal in physical currency. There are several ways that cash can disappear from a small business’ coffers:

• Skimming – when employees take money from the company before it’s been formally recorded in the accounting system. This could be at any small business where the takings are in cash and not automatically reported through a point of sale system (POS). Businesses that are lenient with prices and offer combo deals can make it difficult for employers to take stock of earnings against inventory. This makes small businesses especially vulnerable. 
• Larceny (theft) – where employees syphon cash that has already been reported into the POS system, or accounting mechanism. 
• Fraudulent disbursement – when employees erroneously or intentionally release funds to themselves or a third party without a lawful basis to do so. 

Whatever the method, cash fraud is a difficult activity to monitor and should warrant establishing proper cash monitoring systems in your business. 

2. Payroll fraud 

Payroll fraud occurs when employees lie about their productivity, the number of hours worked or the number of sales to obtain a greater wage than they are entitled to receive. Employees could even ask for advance payment of their wage or salary and never pay it back.

Payroll fraud is increasingly common – especially in small businesses where a lack of accountability in monthly reporting can create opportunities or loopholes for employees to engage in fraudulent behaviour. Depending on the payroll system your business may be at higher risk than others. It’s important to establish the correct payroll system that suits you and your employees’ needs. 

3. Invoice fraud 

Invoice fraud happens when an employee (for example in accounting or in sales) generates and submits false invoices for payment to the business as a means of stealing money. Examples of invoice fraud include:

• Invoicing for products or services that were never existed or never bought
• Setting up a fake company to send money to
• Awarding fake contracts to family or friends 

Invoice fraud can happen within or outside of a business. It doesn’t necessarily require someone inside the business to create a fraudulent invoice. Anyone can send an invoice to a company and hope for payment – or know someone in accounting who will do the deed. 

4. Banking fraud 

Banking fraud is one of the more recent additions to this list. With the rise of online banking, there are growing numbers of false transfers between accounts online. Any transaction ongoing or outgoing should be monitored with care and attention. As the means of cybercrime grow in complexity and capacity, small businesses stand to lose out the most when it comes to online phishing or fraudulent behaviour. That’s why you have to be careful when choosing your bank and go for safe options such as Currenxie. Check out Startys review of Currenxie for more info.

5. Email fraud 

Have you ever received an email from your “bank” or a “friend” needing you to urgently change your account details or sign up for some special new system? Welcome to the world of email fraud. While most email fraud is fairly easy to spot, fraudsters are getting better at making their scam emails more convincing every day.

Email fraud has indeed been around for a while now. It’s the common phishing tactic employed by many fraudsters who try to gain sensitive information to hack or change your existing payment arrangements. Often, this type of fraud is difficult to catch and can result in serious losses of funds. 

Checking your accounts regularly and staying ahead of late payment emails can help alert business owners if something is up.

How to protect your small business

Developing proper oversight and internal security measures is essential to making sure your small business is as safe as it can be from fraudulent activities. But while proper oversight when it comes to accounting and payroll is one side, building trust between employees and throughout the business is also critical to ensuring the safety of your proceeds. 

If you are planning to leave your business to your kids and want to ensure its longevity, get in touch with will lawyers who can help you navigate the law when it comes to estate planning and inheritance. Will dispute lawyers can help ensure your legacy is both secure and benefits those closest to you.