Are you concerned about fraud or theft in your company? If YES, here are 10 most perpetrated types of business fraud and 10 best fail-proof ways to prevent them.

Being a victim of fraud or losing something valuable to fraudsters is a very painful experience. I have almost fallen a victim of fraud in the past but i guess luck was on my side. However, my dad wasn’t so lucky as he lost a very huge sum of money in a business deal with a fraudster posing as a servant of God. While i don’t want to go into details of what happen, i want to draw from that single experience to share with you some tips that will help you avoid being a victim of fraud.

10 Types of Fraud in Business

According to the Association of Certified Fraud Examiners annual report, about half of all small businesses experience fraud at some point in their business cycle. And it will cost each business an average of $114,000 per occurrence. That is, a small business loses around $114,000 during each occurrence of fraud. And that’s big enough a loss to cause some businesses to close shop. Worse, the culprit in most cases of fraud is a “trusted” employee.

Now, those statistics are staggering. And they only drive home the point that most businesses are at the risk of fraud. So, as a small business owner you need to do all you can to protect your business from fraud. You sure don’t want to be ripped off by an employee who has no idea all you went through just to get your business off the ground.

In order to protect your business from fraud, you need to first understand the various types and forms of fraud that your business is exposed to. This enlightenment alone can significantly help you figure out how to prevent the occurrence of fraud. Here are 10 common types of fraud that could destroy any business fast.

a. Theft of stock-: This is a time-honored way to make quick bucks. The culprit will over time steal a number of items from the store or warehouse and resell them, usually at ridiculous prices. You as the business owner won’t notice this for a long time because the stock losses are usually within tolerance. So, if you run a retail store or any other business that offers certain products for sale, you need to be extra vigilant because your business is at high risk for this type of fraud.

b. Check tampering-: This refers to any scheme in which your employee steals from the company’s funds by forging or altering a check on one of your company’s bank accounts. In other cases, the employee steals a check that your company has legitimately issued to another payee. To prevent this type of fraud, ensure that all blank checks are locked up. Insist on time bank receipts and review them carefully. And account for all checks, including void ones.

c. Billing fraud-: This is what happens when an employee makes your company issue a payment by simply submitting invoices for fictitious goods or services, inflated invoices, or invoices for personal purchases. So, the company ends up paying the employee either in cash or with stock.

You can prevent this type of fraud by assigning the duties of invoice approval and check cutting/payment issuance to different employees. Also, require signed approval for all expenditures and review vendor listing periodically.

d. Skimming-: In this type of fraud, the culprit steals money from your company before it is entered in the company’s financial records. Usually, the employee accepts payment from a customer for a product or service but does not record the sale, so all the money made from the sale is stolen. Preventing skimming is easy. Just ensure that receipts are duly issued for each sale, and at the end of each day, be sure to balance cash to total receipts issued.

e. Cash larceny-: This is almost similar to skimming, but in this case, the culprit steals money from the company after it has been recorded in the company’s books and records. Usually, the culprit steals cash and checks from daily receipts before they are deposited in the company’s bank account.

Less commonly, the culprit steals outgoing check to a vendor and deposits it into his or her own bank account. This is less common because it is easy to detect (since the vendor will call to inquire). To prevent cash larceny, you must open all mail and stamp checks on the back “for deposit only with your company.

f. Payroll fraud-: A payroll fraud occurs when your employee prompts you to issue a payment by making false claims for compensation. For example, the culprit might claim overtime for un-worked hours or adds ghost employees to the company’s payroll. To check payroll fraud, make it a rule that employees pick up their paychecks in person at periodic intervals (so you can investigate any checks not picked up). Also, require that all time cards be duly signed.

g. Bribery-: This is when one or more employees offers, gives, receives, or solicits for something valuable for the purpose of influencing an official act or business decision without your consent. For example, an employee can process inflated invoices from a vendor and in turn gets 10 percent of the invoice price as a bribe. Or an employee can accept payment from a vendor in return for leaking confidential information about a competitor’s bid on a projects.

h. Manipulation of sales figures-: This is common among employees that are paid a commission based on how much sales they make or those that must meet a specific monthly target. They manipulate sales figures to reach their monthly target or to get more commission than they are entitled to.

i. Expense reimbursement fraud-: This is what happens when an employee claims reimbursement for fictitious or inflated business expenses. For example, an employee sent on a business assignment to another country can claim additional expenses that are fictitious or inflated.

j. Friendship fraud-: This is what happens when you get so close to an employee that you entrust him or her with vital company documents such as blank checks. Usually, such employees go undetected for a long time because you have trusted them so much, you won’t believe they could backstab you.

10 Best Fail-Proof Ways to Prevent Fraud in your Business

1. Control your Greed-: Well, there is a popular saying that if something sounds too good to be true, then it is definitely too good to be true. One thing that pushes people forward in a deal even when there are warning signs all over that deal is greed. I strongly believe that greed is the winning factor a con man always looks out for. If you can control your greed, you will never fall for any scam.

2. Knowing who you are dealing with-: Don’t do business with anonymous individuals. You must endeavor to find a seller’s physical address (not P.O Box) and phone number. With internet phone services and other web based technologies, it will be tough to tell where a person is calling from.

Do an online search for the company name and website, and look for reviews. If negative experiences are being reported by people, you now have to decide if the offer is worth the risk. After all, a deal is always good only if you get a product that actually works as promised.

3. Note that wiring money is like sending cash-: Don’t send money through untraceable media such as wire transfer, Western Union or MoneyGram without first verifying the authenticity of the deal and the individual involved.

People wire money as often insisted by Con artists, especially overseas, because it is closely impossible to reverse the transaction or tracing the money. Do not wire money to unknown people, especially to sellers who insist on wire transfers for payment, or to any person who is claiming to be a relative or friend in an emergency and wants to keep the request a secret.

4. Always read your monthly statements-: Scammers will always steal account information and then run up charges or commit crimes in your name. Dishonest merchants will bill you for monthly ‘membership fees’’ and other goods or services without your authorization.

Worst still, your employees will steal from you and inflate the price of items purchased if they discover that you don’t bother to go through the books. So invest time to scan through your financial records regularly and when you see charges you do not recognize or do not welcome, contact your bank, card issuer, or other creditors immediately.

5. Place a withdrawal limit on your bank account-: Yea, you can stem the growth of fraud within your organization by placing a withdrawal limit on your account and instructing your bank to contact you when someone tries to withdraw above the limit.

6. Investing comes with a risk; never forget that-: If your are contacted with any low-risk, high-return investment opportunities, please stay away. When you receive a pitch that is urging you to act immediately, offers you a guarantee of big profits and promises little/no financial risk, please take your money and run.

7. Make sure that the staff handling account receivable is different from the staff handling account payable.

8. Do not accept a check and wire money back-: By law, banks will have to make funds from deposited checks available within days, but uncovering a fake check can take weeks. You are responsible for the checks you deposited: if a check turns out to be a fake one, you are going to be responsible for paying back the bank. No matter how convincing the story, someone who overpays with a check is almost certainly a scam artist so be careful.

9. Setting a clear standard-: The best way to help safeguard a business is to set clear standards from the beginning. This involves an appropriate example and ethical tone, starting from the top down. An employee manual can be of great help in establishing the principles and values to guide your organization.

An employee manual levels the playing field and keeps the rules from becoming arbitrary. The rule is applied to all. If someone is dismissed and you discover yourself in court, the manual is capable of being a reference that will explain what actions will warrant dismissal.

10. Checking Employees References-: Before hiring a new employee, always check references and perform background checks that include past employment, licensing, credit and criminal history. The cost of doing this is always far outweighed by the benefit. For instance, as a business owner, you should be cautious of hiring a bookkeeper or accountant with bad credit because the weight of crippling financial duties could turn an otherwise honest person into a thief.

11. Secure your organization-: Make use of renumbered checks as this will enable you to audit for missing checks. Also, checks clearing out of sequence could be spotted more easily. All checks should be kept under lock and key, and the keys should never be distributed.

Other precautions include having a ‘’voided check’’ procedure and do not sign blank checks. All disbursements should be reviewed on regular basis. Scrutinize, and then scan checks made out to suppliers you do not recognize, checks made out to an amount for cash, checks appearing out of sequence and cross check missing numbers.

12. Always be in control of who reviews sensitive documents-: Small business owners should be in control of who first receives the bank statements and other sensitive documents. It is not far fetched for small business owner to have a separate post office box for the purpose of receiving bank statements, customary receipts or any other sensitive documents. This will assist to eliminate the possibility that someone intercepts the mail first for the purpose of stealing or covering up an earlier theft.

13. Do not send money to someone you do not know-: Do not send money to an online seller that you have not heard of/or seen—or an online love interest who asks for money. It is best to do business with sites and persons you have known and trusted. If you purchase items through an online auction, consider making use of a payment option that will provide protection, like a credit card.

14. Do not play a foreign lottery

15. Do not reply to messages asking for personal or financial information.etc.

16. Safeguard your payroll-: This is another chapter subject to abuse. Small-business owners and managers should take the extra time to review every payroll check personally. Although it is time consuming, this procedure will provide a monitor to assure employees are being paid appropriately. This could be especially important when a business has temporary and part-time staff. Although is not always possible in a small business, certain obligations should be maintained separately.

For example, the person who ‘cuts’’ or is in charge of the checks should not be the person who the authority to sign. The person opening the mail should not be the recorder of receivables and reconciliation of the accounts. Even a small business could take a step to separate relevant functions.

In conclusion, i believe the above listed precautions will go a long way in helping you prevent fraud in your business, so take it seriously.