Fraud doesn’t wait for your business to be ready. Embezzlement, payroll fraud, and billing schemes can strike at any time, so it’s vital to practice preventive measures to avoid the problems in the first place.
Various warning signs of fraud risk can alert you to an issue, enabling you to take immediate action to address it. Even better, you have options to further reduce your risk or seek legal support in the event of suspicious behavior. Ryan & Jacobs has been helping businesses with debt collection and litigation for several years to protect their profit margins and minimize their risk of fraud.
Have you spotted any financial red flags lately? Take a closer look at the most common signs of fraud, how they manifest in your business, and what you can do.
Common Types of Business Fraud
Businesses today face a higher risk of fraud than ever before, ranging from classic embezzlement to more technologically advanced forms of fraud. Here are the most common types of fraud that you may encounter.
Embezzlement
Embezzlement is a form of business fraud in which a trusted individual misappropriates money from a company or employer. A vendor, employee, business partner, or anyone else with the right access can commit embezzlement.
Payroll Fraud
This type of fraud involves redirecting funds from a business using its payroll system. Payroll fraud often occurs at the hands of employees or managers who have access to payroll data and can manipulate the system from the inside. A dishonest payroll provider could also commit this type of fraud.
Billing Schemes
A billing scheme occurs when a scammer issues fake invoices to customers or businesses. This type of scheme often involves business impersonation, sometimes accompanied by threats of legal action if the recipient fails to pay within a specified timeframe.
Deepfake Fraud
This type of business fraud is relatively new, largely due to its reliance on AI technology. It revolves around creating a “deepfake,” also known as a falsified video, image, or audio, to trick business leaders into taking a specific action.
A deepfake scammer may attempt to persuade you to hire or work with someone who doesn’t exist, wasting your time and potentially costing you money. This type of fraud can also be used to spread defamatory or misleading information.
4 Warning Signs of Fraud Risk to Watch
Your business can’t afford to ignore the warning signs of fraud risk. According to a 2021 Statista survey, nearly 90% of e-commerce business leaders stated that fraud management was very important to their business strategy. The National Association of Crime Bureau also revealed that fraud costs organizations over 5% of their annual revenue every year, which doesn’t even touch on lost customer business or the cost of reversing the damage.
The common warning signs of fraud risk may already be happening to you, so let’s break them down so you can start taking action.
1. Unusual Expense Patterns
Whether you’re a new business owner or have worked in your industry for years, you have regular expenses to keep track of and manage efficiently. If you notice any unusually high expense patterns, fraud could be happening right under your nose.
When tracking your weekly, monthly, or bi-monthly spending, ask questions like:
- Are any of these transactions unapproved or irregular?
- Are all transactions being sent to the correct payee?
- Have different vendors processed any of these transactions on the same date?
- Do the vendors I’m working with have a solid business reputation?
2. Vague Vendor Records
Following closely on the heels of the first warning signs of fraud risk, you also need to monitor your vendors closely. The Federal Trade Commission’s 2023 study reported over 330,000 business impersonation scams.
Business impersonation scams occur when scammers pretend to represent a brand or company to trick you into giving them money or sensitive information. Take extra care to review your current vendor relationships. Ask questions like:
- How long have I been working with my current vendors?
- Does each vendor have an established business reputation?
- Have these vendors displayed any unusual activity lately, such as higher-than-average transactions or duplicated invoices?
3. Employee Lifestyle or Behavior Changes
A break in a pattern is one of the more subtle warning signs of fraud risk. While occasional changes can often be explained, multiple or more significant shifts in behavior or lifestyle could indicate that they are committing fraud.
The following signs could mean your employee relationships could be at risk:
- A strange email, such as speaking in a different style, misspelling their name, or lacking their usual business signature
- Unusual financial behavior, such as randomly disappearing cash or missing financial documents
- Lost payments or payments moved between multiple accounts
4. Duplicate Payments
Ideally, issuing a payment should be a one-and-done deal. If you notice your business has submitted multiple invoices for the same payment, or received multiple payments for the same invoice, something may be wrong.
When fake vendor accounts issue false invoices, these issues occur. Often, scammers attempt to obtain additional funds, and overlooking or failing to verify financial records may allow them to succeed. Your business may also face an internal issue where an employee is redirecting company funds and attempting to conceal their actions by disguising them as standard payroll activity.
What to Do If You Notice These Financial Red Flags
Prevention is one of the best tools in your arsenal when it comes to fraud. While this section does not constitute legal advice, it provides a solid starting point for early detection and subsequent steps.
Implement Fraud Prevention and Risk Monitoring Tools
Do those responsible for internal business operations utilize fraud prevention tools, such as two-factor authentication for accounts, risk monitoring apps, or monthly financial reports? These minor changes could go a long way in preventing unauthorized access and quickly identifying unusual activity.
Establish Employee Training for Fraud Mitigation
While employee training models typically cover day-to-day responsibilities, they may overlook equipping employees with best practices around fraud. If you’ve noticed any warning signs, consider creating an updated employee training kit to help your team members spot and catch suspicious behavior early.
Work with a Legal Firm Dedicated to Protecting Your Business
In some cases, business owners require more comprehensive assistance. Ryan & Jacobs has a verified track record of helping businesses with legal consultation and representation services surrounding fraud.
Partner With Ryan & Jacobs to Protect Your Business
Running a business is a delicate balancing act, and it’s easy for preventive measures to slip through the cracks of your busy schedule. If you’re struggling to protect your business from fraud or suspect you have already experienced it, we can help.
Our experienced team provides businesses with in-depth evaluations, industry expertise, and cutting-edge technology to mitigate the risk of fraud. From asset investigation and recovery to commercial litigation, a more secure business model could be just a call away.
Think you’re spotting financial red flags in your business? Contact Ryan & Jacobs for an expert evaluation before it becomes a legal crisis.
