What are Fraud Risks for Small Businesses?
Oftentimes, we see other businesses become victims of fraud but never imagine that we could one day become affected as well. When it comes to fraud, however, with just one bad investment, your small business can find itself in trouble.
While many businesses owners are wary enough to avoid major fraud schemes, some entrepreneurs fail to realize all the fraud risks that their small business faces.
New businesses that are just starting out have so much to focus on–and tackling the concept of fraud prevention can seem unnecessary. However, too many businesses end up on the wrong end of a fraud schemes, ultimately forcing a new business into debt. This is something you do not want to put on the back burner.
In order to combat all of the fraud risks on the horizon, take a look at a few of the most common fraud risks small businesses face:
A lot of small businesses have worker’s compensation as part of their employee benefits. While this is a wonderful benefit for employees to have, several workers do take advantage of the system and use worker’s compensation for their own fraudulent purposes.
With worker’s compensation fraud, employees file exaggerated or false claims for their injuries. Other cases may involve employees using old injuries to support a claim of on-the-job injury. In these scams, employees have their medical fees covered by their insurance while they get to enjoy time off work for their non-related work injury.
To help avoid these scams, be sure your employees work in a safe environment and use all the proper safety equipment necessary to complete a task. Some businesses may avoid providing worker’s compensation altogether to avoid getting into any kind of fraudulent situations.
Employees are privileged to have workers comp benefits, be sure your employees aren’t taking advantage of it. If you are considering doing away with your company’s worker’s compensation, take a look at your state laws to see what is allowed.
Check tampering is another common type of fraud that small businesses face. In most check tampering cases, employees will write fraudulent checks from their business under the name of a fake payee, later cashing the check to their own bank account.
The easiest way for small businesses to protect themselves against check tampering is to have multiple people going over the finances for the business, as well as having the owner sign for each check.
The last thing your business wants is to be affected by ransomware in any way. This is when your data is hacked and the important information could be published if a ransom fee isn’t paid.
You can try and stay on top of your data all you want–but to make your life easier and less stressful, consider using a disaster recovery tool that will protect your data in case of a security breach. As a business owner, you might think this would never happen to you, but you should be taking the necessary precautions to ensure that it doesn’t.
Revenue skimming is another type of fraud that plagues many businesses. This kind of fraudulent activity occurs when customers pay cash for a service or product–at this point, cashiers will pocket the cash.
With no paper trail, receipt, or evidence of transaction, businesses have no real way of proving that a product or service was sold or rendered. Businesses that do accept cash as payment should be sure to properly manage and rotate cashier duties.
Small businesses that do not keep track of their purchasing history may fall into fraudulent invoicing. With this kind of scam, businesses will receive fake invoices for services or products that were never paid for.
Many companies that don’t know any better will simply pay the invoices. One way to avoid this is by automating your accounts payable process–this way, all of the invoices that go out will be done as efficiently as possible.
To be extra safe, businesses should always double check every invoice in order to ensure that each document matches up with actual products and services that were purchased.
Most fraud in the workplace falls under payroll fraud–small businesses are particularly at risk for this type of fraud. This typically occurs when workers put more hours than they have actually worked on their pay sheets.
With commissioned employees, payroll fraud usually occurs when false orders or sales are reported. To protect against payroll fraud, businesses should have supervisors regularly review time sheets.
Vendor billing occurs when employees pay fake companies with checks from their business. The fake company then cashes the check that ultimately goes into the employee’s bank account. Oftentimes, these fake companies’ billing information will coincide with that of the employees’.
Similarly, vendor billing fraud can occur when employees use their family or friends for services or products because of their personal relationships. With this type of fraud, the friend or family member typically overcharges for their services. The best way to prevent against vendor billing is to thoroughly check all vendors before any checks are signed.
Stay on Top of Everything
When it comes to businesses and fraud, small businesses tend to experience it worse. Since entrepreneurs are new to the world of business owning, most fail to notice the signs of fraud.
Protecting the business and its finances means always staying vigilant. Managing everything on your own can be really difficult, and it’s understandable if you turn to automation for assistance.
Learning about the various types of fraud and keeping a watchful eye on employees and all financial transactions is a way to stay ahead of the curve.