Types and Effects of Business Fraud

Business fraud is defined as the act or intent of misrepresentation- for instance, scammers lying about their actions, services or themselves- to cause a loss or a gain. With the current tough economic conditions and limited resources, small and medium-size enterprises tend to focus more on survival, growth, and innovation rather than risk management, internet controls and due diligence. These can usually seem like hard work, expensive, and involve lots of paperwork. However, this particular approach leaves a majority of SMEs susceptible to fraud, with many managers and entrepreneurs unaware of the huge risks that their businesses face.

Types of Business Fraud

  1.   Return Fraud

The majority of small businesses who sell goods have at one time experienced return fraud. There are numerous kinds of return fraud. Some of the clients may buy a product, use it for a while, then return it and ask for a refund even though there is nothing wrong with the product. Or, there are fraudsters who steal goods from your store and then try to return the goods and make a profit.

  1.   Money Fraud

Since there is a lot of illegal cash circulating in the country, you may come across counterfeit bills. Money fraud can happen without the customer or you even noticing. Fake bills are worthless since you cannot deposit the money in the bank. If you accept fake money, you will not receive any revenue from the sale. You may also lose more money if you end up giving out real currency as change.

  1.   Workers’ Compensation Fraud
    This is another kind of small business fraud that you will likely come across in case you have employees. As a business owner, local or national laws may require that you buy workers’ compensation insurance. In case your employees get ill or injured at work, the workers’ compensation insurance will compensate your employees for any downtime that they are unable to work and earn an income.

    They are a number of ways workers’ compensation fraud can take place. Therefore, you need to be vigilant and aware of as many of these methods as possible. For instance, employees may get injured while not working and then claim that they got the injury while working. Worse, the employee may make up an injury or an illness.

  2.   Payroll Fraud

Payroll schemes are very common in small businesses as compared to large businesses. There are a number of ways that payroll fraud can take place in your business. Employees can ask for pay advances and then fail to pay them back. The employees may also lie about the hours that they worked on their time sheets. They could also get co-workers to record hours for them that they never worked.

  1.   Identity Theft

This type of fraud can cost your business thousands of dollars. Fraudsters can steal the identity of your business and then use it to access credit. People can get their hands on things such as bank statements, financial statements, or even your tax identification numbers. It is also possible that information can be stolen from your computer.

How To Deal With Business Fraud in The Workplace

Business fraud is not a simple matter to handle. What makes business fraud very tricky is that you will have to prove that there was an intention to mislead or carry out fraudulent acts. In case you suspect any fraudulent behaviour, you must immediately act. Below are a few ways on how you can best deal with business fraud in the workplace:

  1.   Do Not Panic

Stay calm, and do not confront the suspect or fire them on the spot. Instead act rationally. Make a plan, collect and analyse evidence, and then take an action that will be best for your business.

  1.   Lock Down Relevant Data Discreetly

In case the fraudster becomes aware that he/she is a suspect, he/she may try to destroy the evidence. You  should therefore be as discreet as possible. You should be sure to regularly backup all your financial and company communications data. In case you have not been doing so, now is the perfect time for you start. If you don’t have copies of this information stored on hard drives or in the cloud, get an IT expert who can copy the contents of suspect’s hard drive discreetly.

  1.   Set an Example

When you confirm the fraud, you will have several penalties to choose from. There are three types of consequences for business fraud: criminal prosecution, a civil lawsuit, or job termination. You should impose the severest penalty that is allowed by law- if possible impose all the three penalties. Though the punishment may be harsh, it is good for all the other employees to know that you do not condone business fraud in the workplace. If you do not impose the severest punishment, you may risk encouraging other would-be fraudsters, and that will not be in your best interest.

In case you cannot handle the case alone, you should use the services of a business lawyer. You will also have to get in touch with the insurance company in case there is evidence that fraud occurred. In case you have an employee dishonesty policy in place. you have the grounds for a claim under the policy and the ability to recover a portion of the losses.

Leave a Reply

Your email address will not be published. Required fields are marked *