8 Types of Frauds in Business and How to Avoid Them

Being a business owner is often challenging, and you really don’t need to be dealing with business fraud on top of all your responsibilities. If you suspect that some of your clients, business partners, or employees are trying to take advantage of you and your business, you need to take action and resolve the situation as soon as possible.

Unfortunately, business fraud is a very common issue, and it can affect your business and its reputation in many ways.

The good news is that the more you educate yourself about different types of frauds in business, the easier it will be for you to protect your assets from scammers. If necessary, request corporate investigation services to help you collect evidence and get to the bottom of the truth.

Here are the eight types of frauds in business that you should be aware of:

Type #1: Worker’s compensation frauds

Unfortunately, many business owners are scammed by their own employees.

It’s natural to provide a compensation to your employees if they become ill or injured while they are at work. But in some situations, employees can take advantage of your generosity by claiming an injury, collecting benefits, and then never going back to work.

Others could fake an illness, or pretend they got injured while working when in reality, they got injured at home during the weekend.

Type #2: Payroll frauds

Employees can commit a payroll fraud in a few different ways. Payroll frauds in business is a more common type of fraud in small businesses.

Employees can ask their boss for a cash advance, and never repay them. They can also fill out their timesheets incorrectly on purpose, to lie about the amount of time they have worked.

It’s also possible for an employee to ask a colleague to clock in for them, which means they could be paid for some hours they did not even spend at work.

Type #3: Invoice fraud

Invoice fraud occurs when an individual or a company sends an inflated invoice on purpose, or sends two distinct invoices even though only one product or service was received.

If they are not vigilant, businesses can end up paying a lot of money to a company that never provided them any goods or services, or even to a company that doesn’t exist.

Employees can also send false invoices to customers or to business partners on behalf of the company they work for, and keep the money when the invoice is paid.

Type #4: Merchandise frauds

Non-payment of merchandise is a type of fraud that occurs when a fraudster places an order with a company, and the company ships the goods ordered but never receives any payment, or receives a payment that will later be found to be fraudulent.

The opposite can also happen: a company will order some goods from a supplier, pay for the goods, but never receive what they have ordered. These types of frauds would be called non-delivery fraud.

Type #5: Return frauds

Return fraud occurs when a customer buys a product, uses it for some time, and then returns it and asks for a refund, even though nothing is wrong with the product.

There are also scammers who will steal products from a company, and then return the products and request a refund. These types of frauds happen in businesses all the time.

Of course, requiring a receipt before issuing a refund can help prevent this type of fraud, but there are always some people who are up to no good and will find a way to get a refund, even without a valid receipt.

Type #6: Business identity thefts

Fraudsters are able to steal the identity of individuals, but they can also try to steal the identity of a business. And if they succeed, the business is sure to lose a lot of money.

To commit business identity fraud, fraudsters will need access to a company’s financial statements, bank statements, or tax identification numbers. Simply stealing an employee’s paycheck could make it possible for them to steal the identity of a business, so they can withdraw funds from their bank account whenever they like.

To help prevent identity theft, a business could turn to direct deposit instead of handing paychecks to their employees.

Type #7: Data thefts

Data theft can really harm a business and its reputation. It occurs when someone steals confidential information from a business, or when an employee of the business shares this information with an ill-intentioned third party.

Data theft can be related to proprietary information, or to customer records, which means scammers could gain access to the names, contact information, usernames, passwords, and credit card numbers of a company’s customers.

Type #8: Money frauds

Finally, money fraud occurs when someone pays for your product or service using counterfeit money. Some customers can do this on purpose, while others are simply unaware that the bills they have in their wallet are fake.

Unfortunately, this counterfeit money will be worthless if you try to deposit it into your bank account, and it could be difficult for you to trace back who gave it to you so you can get paid for real.