The 5 Fraudulent Practices You Have to Look Out For as an SME

Making money and controlling expenses and overheads is hard enough in business without suffering financial and other losses through fraud. Unfortunately, however, it’s a major concern for businesses of all sizes; in 2018 worldwide fraud cost organizations over $7 billion.

There are various types of fraud perpetrated both by those inside an organization and outside. Money may be the target, or it may be data and ID of staff and customers.

Anti-fraud measures a necessity not an option

Businesses of all sizes need more than ever to have anti-fraud procedures and practices in place from checks that can’t be altered or used inappropriately to ongoing auditing and monitoring system security.

Fraud isn’t only the preserve of big business; indeed, a report from the ACFE (Association of Certified Fraud Examiners) found that businesses with fewer than 100 employees lost nearly double per fraud case than their larger counterparts – $200,000 compared to $104,000 in 2018.

Here are five fraud practices to beware of:

1. Payroll fraud

More common in smaller businesses than larger ones; there are various ways payroll fraud is committed:

• Forging – checks can be altered and forged, although as mentioned above tamper-proof checks can combat this
• Time recording – people can put down more hours worked on timesheets than they’ve worked and ask colleagues to clock in for them

2. Cash fraud

There’s forged cash and general cash theft:

There’s a lot of counterfeit cash flowing through the US money system and this clearly hits the bottom line if you unwittingly accept forged money.

If you don’t detect forged bills, they’re completely worthless when you try to pay them into your bank. Even worse, you’ll lose even more when you give real currency as change in a fraudulent transaction.

Obviously you need to know how to detect forged money.

3. Identity Theft

A huge problem with the increased use of electronic systems and digital record keeping.

Identity theft could affect both your business identity and customer records:

Business ID – fraudsters may be looking to access your business in some way to steal money, so might use your bank or card statements and paychecks that have fallen into the wrong hands to access your bank accounts.

Customer ID – where fraudsters look to access your customer data to either steal their IDs and maybe access their credit card data and bank account details.

4. Asset misappropriation

This could involve cash or actual assets such as equipment and machinery; it’s basically the theft of these and commonly an ‘inside job’ committed by staff or other workers.

Money – frauds such as cash larceny are often committed by those inside the company as they may involve activities such as generating false invoices, check tampering, false expense claims, skimming cash (such as under-recording a sale and pocketing the difference) and more.

Equipment and machinery – could be something as simple as using an office computer for personal reasons during work time (or any time if it’s expressly forbidden), but can extend to staff perhaps running an illegal operation of some kind or their ‘side hustle’ business using company time and resources.

Another example could be using a company vehicle for personal use when it’s forbidden or filling their own vehicle up using the company fuel card.

5. Online purchasing fraud

The rise of ecommerce has seen fraud explode in online transactions. Some common online frauds include:

• Stealing a product in the first place from you then returning it for a refund
• Purchasing a product, using it then making a return (even though nothing is wrong with it)
• Using a stolen or cloned credit card to make a purchase
• Claiming they didn’t receive the right quantity of items even when they did

The battle against fraud

Unfortunately, fraudsters develop ever-more difficult to detect methods to perpetrate their crimes; ironically the rise in technology is helping them but could also help you. Installing IoT devices and sensors in your facilities and within your company equipments and products (like usage detectors, presence sensors, trackers and locators, ID detectors…) is an efficient and dissuasive way of dealing with the temptation of fraud from shameless employees or customers.

It’s important for you as an SME owner or senior manager to remain vigilant and allocate certain time and financial resources to combatting fraud.

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