Common Types of Business Fraud Schemes

Employee theft is costly for businesses. Each year, billions of dollars are siphoned away through business fraud. Knowing the crime schemes or scams impacting business owners and methods to prevent them from occurring is essential. Business owners spend a lot of time and resources protecting businesses from numerous risks, whether it is in terms of liability for products or services or more. But one thing that they often do not consider is the type of losses that occur when business owners think they are immune from business fraud. 

Business Fraud Scheme#1: Expense Reimbursement

Employees may not submit extra expenses that have either never occurred or are not linked to a certain business event. Employers need receipts for reimbursable expenses and those pertaining to unusual categories of expenses should always be questioned. Having a supervisor review expense reports before submitting for payment can identify expenditures that are not warranted.

Business Fraud Scheme#2: Check Tampering

In this type of business fraud, employees can use company checks to pay themselves when they run checks or reissue uncashed ones in their name and cash them. Either the owner or another accounting professional should be made to review checks before they are signed. The review system makes it tougher for workers to tamper with checks. 

Business Fraud Scheme#3: Payroll Schemes

This involves changing the amount on the employee's payroll check or creating replicas of the check for cashing in more place than once. A manager or owner should undertake the check review before duplications are considered.

Business Fraud Scheme #4: False Billing and Vendor Invoices

Business fraud schemes such as false billing and vendor invoices are the result of bad habits. Check that employees do not set up false vendor accounting systems. This makes it easy for them to bill specific services or goods for the company. One person alone should not be responsible for the accounting.

What You Can Do To Guard Against Fraud

Training workers is an important part of guarding against fraud, such as fake invoice schemes. You need to conduct background checking for every employee. Clear accountability for each position in the company is a must. Establish a system of checks and balances. Have a company suggestion box and guarantee anonymity for workers reporting business practices that are suspicious.  You need to communicate frequently to specify a code of conduct for employees. Investigations need to be conducted to check discrepancies as well.

Business fraud can cost your company millions of dollars. That is why a system of checks and balances is a must. It is essential to identify each project resources are allocated to. Personnel should follow an employee code of conduct to ensure that they are not violating acceptable rules. Business fraud can make a real dent in profit margins and company credibility. Choose a fraud prevention software and have preventative practices in place as well. A business fraud makes for loss in profits and a damage of reputation too. Business partners and employees should be carefully evaluated before your company associates with them. In the case of business fraud, prevention is certainty better than cure.

Differing Types of Business Fraud to Look For

There are several different types of business fraud. The most common types are the external business fraud. External frauds are malicious schemes conducted by scammers to deliberately disrupt the sales process of the company. These include breach of database, credit fraud, identity theft and the likes. There are also some frauds that are conducted and against the business from within the company itself. These types of fraud are classified as internal fraud.

Internal business fraud is just as damaging as external fraud. They both cause major losses to the company. This is the reason why it is important to detect and identify them immediately before the company incurs a more serious problem. In order to resolve internal fraud, you must first learn about them. To give you an idea about some of the most common types of internal fraud, see the list below:

• Payroll Fraud

Payroll fraud occurs when an employee or group of employees is intentionally overpaid in order to take advantage of the company's resources. There are two ways a fraudster can do this; one is by tampering their time card and two is, by bribing the payroll officer, in which case the payroll office now becomes a participant of an organized crime. Another form of payroll fraud is including ghost employees on the payroll. This too is another way of exploiting the company’s fund.

• Cheque Fraud

Cheque fraud is often conducted by the person in charge of issuing cheque payments to suppliers. This type of fraud can be hard to detect, especially since the person issuing the check is also the ones encoding them into the system. At first glance your financial statement may look fine, but once you begin reconciling the cheques and the invoices, the fraud will soon be apparent. Another form of cheque fraud is issuing cheques to a non-existent supplier using a fake invoice.

• Reimbursement Fraud

Reimbursement fraud is another type of business fraud. Some employees take advantage of their reimbursement privileges by overcharging the company. They do this by listing down irrelevant expenses or non-existent expenses in order to bloat the value of their reimbursement.

• Trading Company Information

Another type of business fraud involves disclosing company secrets to a third party in exchange for financial gain. This type of fraud does not only result in company losses but can also put the entire company’s existence in jeopardy.

These internal business frauds can all cause huge amount of losses to the company. This is the reason why it is important to invest in your company internal security system so you can avoid running into this type of problem. Aside from actively participating in monitoring your company’s activities, you may also consider consulting a fraud expert. A fraud expert can help assess the current status of all your existing security measures. They can also check your company policies and employee policies. You may also ask for suggestions regarding upgrades and updates to your business fraud security system to cover the latest threats to your business.

A Guide to Different Categories of Business Fraud

There are many different types of business fraud. The essential element in all of these is an illegal or fraudulent business trying to rob you of your hard earned cash. There are many different categories of fraud for which you need to file a report. These include:

• Corporate Service Fraud
• Institutional Investment Fraud
• Business Trading Fraud
• General Business Fraud
• Other Types

Corporate Service Fraud

Corporate Service Fraud is a category of frauds where the business leverages unfair or fraudulent means through the services it renders. Some aspect of its transaction with the client forms the core of a fraud. The most common type of corporate service fraud is payment fraud. In this type of business fraud, fake payments are created or diverted. Examples comprise creating fake records, bank accounts and more where fraudulent payments will be made to self. Other steps involve intercepting and altering payee details, and amounts on the checks and other forms of payment order and working to bank these payments. False claims by accomplices for later repayments are also a likely in a payment business fraud.

Institutional Investment Fraud

Institutional investment fraud refers to a business fraud category, where investors are duped of their money by legal sounding scams. The most well known of these frauds is the pyramid or Ponzi scheme. Named after Charles Ponzi, a 1920s swindler who invented the scheme, it involves getting investors to pay up and then, investments of those later is used to pay the earlier ones forming a pyramid. The success of the scheme depends upon giving the appearance that the investment is dramatically rising, when none of this is true. These type of frauds were made popular by Wall Street investor Bernie Madoff who duped people of USD 65 billion in recent times. Business fraud involving investment is most common at the start of recession, when investors seek to remove money from the scheme, leading to exposure and collapse.

Business Trading Fraud

This type of fraudulent activity involves the allegedly legitimate business to set up a scheme with the sole intention of defrauding investors, suppliers and customers. This may often take place after the business has developed an excellent reputation and credit history through long term fraud. Another situation is when the apparent business has been operating for only a few months and this is called short term fraud. The latter is often online or internet related fraud.

General Business Fraud

This is when a business fraud is perpetrated involving insolvency and bankruptcy mostly. Insolvency related fraud takes place when a company is fraudulently trading and it often takes place just before anticipated insolvency of the firm. Shadow directors may be setting up hollow companies after their first firm, just to take assets from the latter and avoid paying debts at the same time. Liquidators and creditors can take action against these corporate fraudsters.

Other Types

Other types of business fraud include intellectual property theft and counterfeit goods fraud, insurance specific fraud, banking and credit frauds, telephony and gambling frauds.

Business Fraud - From Past to Present

In the past, business fraud mainly involved internal issues caused by a company's dishonest employees and executives. Today, corporate fraud still involves the same problems, but ecommerce fraud has rapidly grown over the past few years to become one of today's biggest issues for many businesses worldwide. To learn how to avoid these two basic types of corporate fraud, you must understand how these fraudulent schemes are done this year.

• Internal Business Fraud This 2016

Fraudulent tactics of dishonest employees and executives for committing internal business fraud have evolved throughout the years. This is to keep at pace with the rapidly growing popularity of advanced technologies for the back end systems of many businesses around the world.

Payroll fraud is one of those back end business systems that can be exploited by internal accounting and management staff. With new technologies for supposedly quicker and simpler employee time-keeping and work-tracking systems, downtimes can be simulated to cause certain delays in what should be regular reconciliation processes with the company's accounting operations. This business fraud aims to steal money from a company through payments for non-existent overtime hours.

Over-stocking schemes and double check fraud have also become quicker and easier for dishonest employees to manipulate with the latest banking technologies out there. The acquisition of a company's required supplies is now done through semi-automated processes, which can be exploited by internal staff through quicker and easier ways for returning excessive supplies in exchange for cash and gift cards. The latest business checking account platforms are also being exploited through identity fraud, which makes it simpler for internal staff that issues checks to defraud a business.

Now that you know how internal business fraud is integrated with the latest back end technologies of many companies today, let's move on to the more recent types of ecommerce fraud. These are some of the most widespread tactics that are used by criminal syndicates worldwide to defraud businesses of all sizes around the world this 2016:

• Ecommerce Fraud This Year

Leading the lineup when it comes to the most prevalent tactics and schemes for committing online business fraud this 2016 is card not present scams. This is where fraudsters use stolen credit cards and sometimes even hacked bank accounts to order products from an ecommerce store and have it delivered to other criminals with safety drop-off points. When legitimate account owners file disputes and chargebacks against these fraudulent transactions, the ecommerce merchant is left to pay fees despite losing their products without any revenue.

Many businesses even lose the ability to accept online payments. Some of them are sent to merchant blacklists because of these scams. Some online security groups in the USA reported $8 billion of losses because of these card not present scams in 2014, and they predict around $19 billion of losses due to credit card fraud among other types of identity theft by 2018.

Friendly fraud is also a big problem of many businesses that sell digital goods and virtual services. This is where customers intentionally file disputes and chargebacks to defraud businesses. They keep the products of merchants for themselves and stiff virtual service providers out of their hard work. This online business fraud has caused businesses around the world millions of dollars in losses.

Now that you know the most prevalent types of online business fraud this year, you can choose the most suitable set of Web security technologies and manual customer identity verification procedures to implement into your ecommerce operations. Just remember to also keep in mind the most widespread internal fraudulent schemes that affect many businesses today. This will provide you with a means to combine the available solutions today to fight both internal corporate and ecommerce fraud.

Awareness Is The Key – Don’t Be A Victim of Business Fraud

The FTC, or the Federal Trade Commission, has stated that all forms of online business fraud have constantly maintained a high position in their top 10 categories of consumer fraud complaints. The Federal Trade Commission’s main goal is to stop deceptive, fraudulent, and unfair businesses practices. They have also dedicated themselves to providing information to help both business owners and consumers spot, prevent, and ignore scams and business fraud offers.

The Internet is filled with lots and lots of great business opportunities, with more individuals gaining success over time. But if they feel like they’re being pressured into purchasing or building their own business, without first doing their research, then this is likely a type of fraud. A real online business promoter will always provide their assistance to their clients, dutifully respond to their questions and give them enough time to make the right decisions for their businesses. 

The most seasoned online consumers will be able to tell the signs of fraud immediately. A lot of fraudulent scammers like to send off dozens of spam emails, or post ads online that involve vending machines for candy, chips, cola, or sometimes items for personal hygiene. Sometimes, they like to present their clients with an opportunity to apply fora medical billing job, or a position in an envelope-stuffing business. 

The Top Two Online Business Fraud Tricks, and How To Avoid Them

    1.)    Envelope Stuffing – Advertisements for this kind of work can be found just about everywhere you look. From mailboxes, to email inboxes, online search results, to newspaper classifieds. Scammers behind these types of jobs usually imply that for a small fee, they can teach you how to earn loads of cash, just by doing something as mundane as stuffing envelopes at home. They might also mention that you can earn cash for just a few envelopes, making it very possible for you to earn hundreds, or even thousands of dollars per week. This type of job is the most popular type of fraud, and it continues to reel in new victims up to this day.

   2.)    Medical Billing – One more popular type of fraud revolves around a home-based medical billing opportunity that will ask you to pay a couple of fees up front for all the necessary supplies to begin your own medical career. Several of these companies will entice you with top-notch medical software, together with a long list of patients that you can contact nearby. Losing cash in the form of upfront fees doesn’t sound too dangerous,at first for some people, however the effects can be quite devastating financially, especially when your income is limited. In case you do end up becoming a victim, you shouldn’t rely too much on retrieving your original investment.With this type of business fraud, there’s a very little chance that you’ll get paid.