Business Fraud

5 Most Common Types of Business Fraud

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Fraud statistics in the United States are fairly frightening. Businesses lose an average of 5% of their gross revenues to fraud, and private companies have a median loss of $150,000. At the owner and executive level, the median loss increases to $850,000. The unfortunate reality is that fraud is all too common in businesses, with these fraud types being among the most widely reported: 

Asset Misappropriation

Fraud experts like Diligence International Group see instances of asset misappropriation all the time. This type of fraud describes when trusted people in charge of business assets steal them through fraudulent activity.

Fortunately, asset misappropriation is one of the easiest fraud types to spot. You might notice forged checks, unbalanced accounts, or missing inventory. These can all be signs that it’s time to investigate someone in your business for asset misappropriation

Tax Fraud

Tax fraud occurs when an individual or company misreports its earnings and expenses to the IRS. The goal is often to enjoy special exemptions and sometimes even lower tax brackets. Despite frequently resulting in legal action, hundreds of people commit tax fraud yearly.

Most people found guilty of fraud are white male American citizens around 50 years old who caused a median tax loss of $218,035. Despite being prevalent, tax fraud is easy to avoid. Never over- or under-report your earnings. You can also use trusted accounting professionals to file your taxes on time and accurately. 

Data and IP Fraud

Most businesses have sensitive intellectual property (IP), data, trade secrets, and patents they don’t want falling into the wrong hands. Should the general public or a business’s competition end up with any sensitive information, it has the potential to cause significant financial and reputational losses.

Sadly, data and IP fraud can happen in businesses. However, business owners may be able to prevent it by restricting access to sensitive information. Only those at a high level should have access, and security policies should be in place for its handling. 

Payroll Fraud

Payroll fraud often affects more small businesses than large corporations and companies. That’s because small businesses tend to have fewer anti-fraud measures and time-tracking software in place. 

Payroll fraud can look like employees lying about the hours they worked on their timesheets to receive more money. Some employees may even request advances on their pay but don’t pay the money back or work the additional hours to make up for it. You might even discover examples of employees clocking other employees in and out to prevent them from missing hours and, thus, income. These are all common examples of payroll fraud.

Invoice Fraud

You might trust your sales and accounting employees, but that doesn’t mean they’re trustworthy. Many employees in these departments can be guilty of invoice fraud. Invoice fraud involves creating fake invoices to steal money from a company. It can be as in-depth as invoicing for products and services that no one bought and funneling the money through a fake supplier or shell company. 

Business fraud is an all-too-common occurrence, and it’s costing the average US business thousands of dollars. The more anti-fraud measures you have in place, the easier it might be to protect yourself and your business from fraudulent activities.



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