Every Type of Fraud Business Owners Should Know

In 2020, records revealed over 2.1 million fraud reports accounting for more than $3.3 billion in losses. These numbers call for efforts to protect and educate consumers and businesses alike.

Were you once a fraud victim, or are you looking for ways to prevent fraud from even happening to your business? Either way, you’ve come to the right place. This fraud prevention guide will protect your business against a common type of fraud.

Payroll Fraud

Payroll fraud occurs when a person fakes paperwork or manipulates the payroll system. Doing so forces the company to pay out the wrong amount of money. The following are the most typical types of fraud in payroll:

• Overstating the number of hours worked by employees
• Increases in a rate of pay without proper approval
• Changing the values used to calculate bonuses or commissions
• Making up “ghost” personnel
• Collecting money from dismissed employees’ paychecks

To prevent this from happening, perform background checks on all potential hires. Managers should keep an eye on timesheets and invest in automated payroll providers.

Return Fraud

Many retailers have a return, refund, or exchange policy for defective products. These steps are how it should work, at least. But some people take advantage of this.

Return fraud includes:

• Lying about purchases
• Returning stolen products
• Stealing receipts
• Using items and then returning them before the return period ends

Prevent return fraud by strengthening responding to payment disputes and exchange policies. For instance, all refunds and exchanges should come with receipts. Also, you can give store credit instead of cash when issuing refunds.

Money Fraud

Money fraud occurs when a customer uses counterfeit money for transactions. It’s hard to decipher real money from the fake ones with the now-advanced ways the fraudsters use.

Education is key on how to prevent fraud. Teach personnel who handle cash how to spot counterfeit banknotes. If you take enormous sums of money, invest in a counterfeit money detector.

Bribery and Corruption

Bribery and corruption are very much present even in small businesses when unmonitored. It covers a wide range of activities, including:

• Taking kickbacks from projects
• Using money to sway significant company decisions
• Rigging contracts to favor certain persons over others

Your fraud protection measure with this type includes implementing stricter compliance programs. Ensure that all employees, managers, and third-party providers do their due diligence.

Data and Identity Theft

Many companies deal with sensitive data, whether personal information or intellectual property. Leakage of trade secrets and patents can be disastrous for your company. Data and identity theft may harm customer trust.

To avoid this type of business fraud, restrict access to high-level documents. Put in place a security policy for classifying and handling sensitive data.

Safeguard Your Business Against Every Type of Fraud

As they say, prevention is better than cure. A well-structured and organized fraud risk management policy prevents devastating losses. Comprehensive fraud controls demand understanding the type of fraud as discussed above.

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