Being a small business owner is stressful enough without having to worry about being taken advantage of through fraud. Some fraud schemes and scam attempts are as old as time and have become common concerns for all business owners. But, as technology has evolved, it has become easier for those wanting to scam a small business owner or commit fraud to do so without the business owner even knowing until it is too late. Business owners must become aware of the most common small business frauds in order to lessen their chances of becoming a victim. If a business takes preventative measures to protect its assets from unethical behavior, it can hopefully avoid significant financial losses.
Today’s small businesses cannot operate successfully without using the internet. Although the internet is necessary for the success of any small business, it comes with risks data, banking information, and other critical systems. Online fraud is rampant worldwide and small businesses must be able to safeguard their online systems. Inability to prevent or mitigate cyber vulnerabilities, can result in a permanent shutdown. “Phishing attacks” are the most common type of vulnerability. Phishing attacks attempt to lure user into opening an e-mail or attachment that contains malware that compromises the user’s data, such as usernames, passwords, bank-account data, customer’s credit-card information. Successful phishing attacks can lead to the fraudster gaining complete control over your accounts.
What makes phishing emails so dangerous is that they often appear to be from a legitimate sender with a legitimate message. To avoid these scams, business owners must take preventative measures to protect their business, including investing in protective software and services that will ensure phishing e-mails are blocked or labeled as dangerous. Service providers can also deploy advanced security safeguards, including multi-factor authentication and data encryption, to keep business data safe from a breach.
A common check fraud occurs when a small-business customer pays for goods or services with a check that exceeds the amount of the goods or services sold, called an “overpayment.” The fraudster then asks the business to pay them the excess in cash, and it is not until later that the small business discovers that the check bounces, meaning the fraudster not only escaped with the cash difference but also the goods or services sold.
To help prevent check fraud, small businesses should adopt policies to only accept checks from trusted suppliers and customers or not accept checks as a form of payment at all. If checks are accepted and a customer writes a check for an amount greater than the bill of sale, let the customer know the company only accepts checks for the actual amount of sale.
Counterfeit currency is another common and well-established fraud technique. Good counterfeits can be very hard to distinguish from real currency. In fact, the United States Department of Treasure estimates approximately $70 billion counterfeit bills are in circulation. That amounts to one in every 10,000 bills being counterfeit. If a small business accepts cash, employees should be trained in how to check the authenticity of currency to the best of their ability.
If a small business with physical locations must carry a variety of insurance policies, including policies that cover liability for accidents that occur on site. One of the most notorious scams is the individual who fakes an injury and then attempts to make a claim on the business owner’s insurance. In these “slip and fall” cases, the fraudster claims to have suffered soft tissue injuries that do not show up on x-rays.
Another version of this scam is when fraudsters cause car accidents in front of a business by slamming on their brakes and forcing a rear-end collision. They then claim injuries from their manufactured collision and make a claim on the business’s insurance. To avoid these situations, small business owners should be prepared by having strong insurance policies that will protect the business against these types of scams.
Many small business owners receive numerous bills each month and often get used to paying them without reviewing them thoroughly – or even set them up to autopay. This makes it very easy for a scammer to mail or e-mail a fake invoice to a small business that may just pay it out of habit. Bills for advertising that never ran, orders for office supplies that were never placed, memberships to trade organizations that do not exist, or even invoices that are falsified may be sent.
Many thieves will pose as vendors and send invoices that look completely legitimate. Using accounting software and online banking with automated billing and payment systems that match every invoice to a real transaction can help prevent financial fraud. Employees that pay bills should also be trained to follow proper payment procedures and to question any new bill that seems out of the ordinary.
Unfortunately, there have been innumerable small businesses whose employees are the ones to commit fraud. Occupational fraud is incredibly common and has been found in all levels of organizations, from entry-level employees to executives.
Employees can commit a wide variety of fraudulent acts. Asset misappropriation is very common and includes shoplifting inventory, skimming profits off the top, or stealing money from a cash register. Corruption is also considered occupational fraud and includes employees bribing suppliers, giving unauthorized discounts to friends or family members for services, and selling sensitive data or company secrets to competitors. The best way to prevent employees from defrauding your business is to conduct annual financial and inventory audits, reporting any suspected fraud, maintaining close oversight of the business’s financial records, and learning more about how employee fraud is committed.
Small business owners should be very concerned about the potential to become a victim of fraud. By taking robust steps to safeguard their businesses from the above list of common small business frauds, they are actively taking meaningful steps to prepare for anything that comes their way.