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5 Most Common Fraud Scenarios for Small Businesses

Feb 22, 2018 - Posted by: Rocky Mountain Credit Union

Fraud can plague any business, but for small businesses, they lack the resources to sufficiently implement internal checks and balances for their accounting systems. For a small business, employees wear many hats, and they may lack the expertise to perform some of the tasks assigned to them which is why internal fraud is huge in small businesses.

Payroll Fraud

Payroll fraud occurs in 27 percent of all businesses and twice as frequently in small businesses(fewer than 100 employees) than larger ones. Owners must gain a working knowledge of the payroll system and enforce accountability among bookkeepers. Payroll complexities increase as a company grows, especially if overtime is a factor, owners have to maintain consistent scrutiny.

Cash Theft

  • Skimming: when an employee takes cash that hasn’t been reported to the accounting system
  • Larceny: when an employee takes cash that has been reported
  • Fraudulent disbursement: when an employee releases funds that haven’t been authorized by the owner

Online Banking

  • Online banking has increased in popularity as funds could be easily transferred to erroneous accounts
  • Cybercrime has never been more sophisticated
  • Small business owners need to stay up to date on threats and respond accordingly

False Invoicing

  • Basic oversight over every vendor in their business
  • False invoicing is an increasingly popular fraud method
  • Employee creates false suppliers or when he pays a legitimate supplier and diverts the cash into an alternative account

Invoice Email

  • Perpetrators who pose as legitimate suppliers and advise changes to existing payment arrangements
  • Fraud may not be detected for some time
  • Business is alerted by complaints from suppliers that payments were not received
  • Regular check-in with vendors can help guard against this fraud

Small businesses that have reported fraud suffer an average loss of $150,000. That can make or break a small business.

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