Building your business took hard work, sleepless nights, and dedication. But all that effort can be at risk when fraud strikes. Small and medium-sized businesses (SMBs) are common targets due to limited resources and weaker financial controls.
Here’s an overview of common financial fraud schemes, how to prevent them, and why strong financial controls are essential to your success.
Top Financial Fraud Schemes
1. Payroll Fraud
What It Is: Manipulating timesheets, inflating hours, or creating fake employees.
Example: A Wendy’s manager created a "ghost employee" and stole nearly $20,000 by clocking them in and out, transferring the stolen wages to their personal account.
2. Expense Reimbursement Fraud
What It Is: Submitting fake or inflated expenses for reimbursement.
Red Flags: Duplicate receipts, vague descriptions, or unusually high dining expenses.
3. Vendor Fraud
What It Is: Fake vendors receiving payments or collusion with employees to overcharge.
Example: A California company lost $1.5 million to a fake vendor scheme.
4. Phishing & Business Email Compromise (BEC)
What It Is: Scammers impersonate executives or vendors to trick employees into wiring funds.
Impact: BEC scams cost businesses $2.4 billion in 2021, with SMBs heavily targeted.
5. Asset Misappropriation
What It Is: Employees stealing inventory, equipment, or funds for personal use.
Example: An Amazon employee created fake vendors and funneled $10 million in fraudulent payments to herself.
How to Protect Your Business
Fraud prevention is about creating systems that stop fraud before it happens. Here’s how:
Separate Duties
Divide responsibilities so no single employee controls an entire financial process.
Leverage Technology
Use accounting software with fraud detection and dual-approval workflows.
Regularly update cybersecurity systems to block phishing and ransomware attacks.
Monitor Financial Activity
Conduct regular bank reconciliations, review statements, and perform surprise audits.
Train Employees
Teach staff to recognize phishing scams and handle sensitive data securely.
Vet Vendors and Employees
Perform background checks on hires and due diligence on vendors.
Enforce Financial Controls
Require dual approvals for high-value transactions and maintain a robust expense approval process.
Why Financial Controls Matter
Fraud doesn’t just cost money—it erodes trust, damages morale, and could lead to legal issues or even bankruptcy. Strong financial controls protect your business’s future and ensure resilience against threats.
Partner With Us to Safeguard Your Business
Preventing fraud is a team effort, and we’re here to help. Whether you need an audit of your processes, new systems, or ongoing monitoring, we specialize in protecting SMBs like yours.
Don’t let fraud jeopardize what you’ve built. Contact us today to secure your business and peace of mind.
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