Fraud can be a significantly damaging force within a company, leading to loss of both money and trust. The most common types of fraud involve intentional deception with the end goal of financial gain for the perpetrator. From minor insurance fraud to major corporate fraud, you never know when you may become the victim of fraudulent activities within your company.
Understanding the types of business fraud your company could be vulnerable to is an important part of putting procedures in place to protect your business and its assets.
Common Types of Business Fraud
Payroll Fraud – when an employee lies about the number of hours they have worked, or how long a particular job took them if they are a service call business, ie. locksmith. Or if they request an advancement on their pay and never pay the company back, are all considered types of payroll fraud.
Skimming – this is the act of an employee pocketing assets from the company, typically cash payments, and either recording a lesser amount received in the books or neglecting to record the transaction at all. For example, if someone is hired to paint a house and the invoice amount should be $500 but the employee only records $400 and keeps $100 for themselves.
Asset Misappropriation Fraud – also known as insider fraud, is somewhat similar to skimming. This type of fraud occurs when an employee uses company money, equipment, or inventory for personal uses. It includes activities such as forging company checks to him or herself, stealing inventory, falsifying expense reports or sales reports where a possible commission can be earned, or abusing a company credit card for personal purchases.
Falsifying Invoices – when an employee creates fake invoices or even a fake supplier to pay expenses to but pockets the money being paid out for themselves.
Insurance Fraud – many companies offer some type of worker’s compensation health benefits for employees who are injured on the job. When an employee fakes an injury and submits a false claim to take advantage of these benefits it is considered employment insurance fraud.
Intellectual Property and Data Theft – If an employee takes trademarked ideas from your company and starts their own business using those ideas that is considered intellectual property theft. Even worse, if they take client lists and personal information such as credit card numbers and use them for their personal gain it is considered data theft. Data theft can be particularly damaging to a company’s public image and reputation since it is a leak of sensitive information that they have been entrusted with.
Banking Fraud – this type of fraud involves moving money from a business account into a secondary unused account by an employee for their own purposes and is typically carried out online these days.
Financial Statement Fraud – when a company tries to appear stronger in the public eye than they actually are. This type of fraud is usually seen with larger companies that are public where they are trying to inflate the value of the company by means of reporting higher sales figures than they should or neglecting to report liabilities.
Protect Your Company From Fraud
No one wants to find out that an employee has been stealing from them. By putting some simple safeguards in place, you can limit the opportunities employees have to commit acts of fraud against your company.
Steps like using an electronic time-management system for employees to clock in and out of, limiting the number of cash transactions you handle, and regularly checking the books yourself to make sure things look right. Having more than one person in charge of paying invoices or handling bank account information and rotating those responsibilities weekly or at least monthly so that there is a checks and balances system in place will all help to reduce the chances your business will be a victim of some sort of insider employee fraud.
What To Do When You Suspect Fraud in Your Business
Upon reflection, you may confirm that your suspicions of fraud in your company are correct. When this is the case it is important to keep a written record of all activities surrounding the fraud immediately prior to its discovery as well as afterwards. At the same time, your ideal solution would be to hire a private detective to take over and conduct a more in-depth investigation, to make sure that the proof required to make your case is collected. Not only is a private investigator specially trained in what needs to be done, but they are also considered a reliable third party whose evidence will be fully admissible in a court of law.
Certain types of fraud, such as insurance fraud can be harder to prove, and there is the worry when trying to conduct a fraud investigation that it will cause disruptions to your daily proceedings and potentially compromise working relationships within your company. A skilled private investigator will conduct their research with the professional sensitivity and discretion that each case demands.
A successful fraud investigation involves collecting all evidence that fraud has indeed taken place, which is where your written record can greatly benefit the case, followed by a meticulous investigation of asset and background assessments of the alleged suspect(s), an evaluation of your overall business, covert surveillance, and other investigative tools and techniques – as needed.
Fraud can quite literally destroy a company if it goes on undetected for too long. Being aware of your company’s vulnerabilities and creating processes that will help protect your business is vitally important. As is making sure not to ignore any signs of possible fraud if you notice them.