Business fraud can take many forms

by | Aug 23, 2021 | business law | 0 comments

For many businesses, losing five percent of financial revenue is the proverbial “drop in the bucket.” However, when fraud is the cause of the monetary setbacks, losses can add up and significantly impact a business’s survivability.

The Association of Certified Fraud Examiners (ACFE) revealed small businesses lose about five percent or more than $150,000 annually. Other studies claim that nearly $4 million in losses throughout the world. Fraud can take many forms including internally with employees or externally with an individual or company on the outside.

The business of fraud is good when unethical individuals get away with illegal acts. While complete elimination of fraud is a lofty goal, proactive steps can help companies minimize preventable financial losses.

Payroll

Particularly impactful on small businesses, employee deception costs significant amounts of money:

  • Reporting more hours than worked or falsifying sales reports to receive unearned commissions
  • Requesting an advance in salary, only to leave the company before paying it back
  • Asking a co-worker to clock in and out in their place to inflate the number of hours worked.

Invoice schemes

Sales and accounting employees with access to blank invoices can easily manufacture a fake document to enrich themselves:

  • Product/service invoices where nothing was purchased
  • Inventing a shell company to funnel money into the “business”
  • Overinflating contracts and awarding them to family members and friends

Financial statement falsification

When a business is struggling, and investors are asking questions, some companies use more “creative” methods to boost their numbers:

  • Inflating financial statements when it comes to revenues, assets, and liabilities
  • Engaging in stock manipulation
  • Increasing bonuses

Business fraud is not limited to the examples listed above. Protecting a company from unethical employees presents challenges. However, specific strategies can help minimize illegal actions.

Making fraud reporting a key aspect of company culture and provide an anonymous anti-fraud hotline is a way to get everyone involved. Also, putting in place specific policies and significant consequences can send a clear message that fraudulent acts will not be tolerated.