The Most Common Frauds in Small Business
There is a misconception among small businesses that frauds can only happen to big corporations. But fraud can take place at any place and in any business irrespective of size. Preventing and mitigating the risks caused by frauds in small businesses. Fraud activities affect small businesses to a larger extent as the size of financial loss takes up bigger space in the revenue generated as compared to large organizations. But before the prevention of the fraud, a small business must be aware of the frauds that can happen with them.
Some of the common frauds in small businesses include:
- Payroll fraud- One of the common frauds in a small business is payroll fraud. This kind of fraud is usually internal and is done by the employees. Most often employees ask for advance payments and never pay them back. Some of them even leave the company after taking advance salary without giving any reason. In order to avoid this kind of fraud, systems must be kept in place and proper monitoring of timesheets must be done.
- Payment frauds- These kinds of payments are usually external and are done by customers or clients. Customers use apps for faking the payment and showing on the popular payment app that the payment is being done by them. This is a side effect of online payment methods. In other cases, clients also deny receiving payment in the first incident and take the payment for the second time as well.
- Card frauds- Cards are the most vulnerable part of any payment method. They can easily be hacked and used for frauding payments and taking money. Fraudsters remove the magnetic stripe of a card and force the cashier to enter details manually which increases the possibility of using the card to pay for goods.
- Accounts payable fraud- Accounts payable can be both external and internal in nature. Employees in the organization make fake invoices for skimming money into their own accounts. Most often clients take up small orders and make the payment on time, leading to build trust and credit, before eventually placing a large order and disappearing without ever paying the bill.
- Loan fraud- Getting a loan for a small business opens the chances of encountering fraudsters who pretend to be from legitimate banks and organizations. They ask for the company’s financial status and details along with deposits and fees for processing the loan at a faster pace. Taking away all the money and leaking you bankrupt.
- Online phishing fraud- Cybercrimes are the most dangerous form of fraud. Technological advancements have given rise to online phishing. In this kind of fraud people usually receive emails with attachments, which once opened, exposes the business to malware. This causes both financial and reputational damage to the small business.
A Proper internal controls can Help your business prevent Fraud Read Why Internal controls are important for small businesses to prevent Fraud?
Thus it becomes very much important for a small business to take preventive measures to prevent the frauds from happening rather than taking steps in overcoming the damage caused by frauds. The people at the organization must check each and every detail of the payment before processing and never trust anyone for sharing confidential data.
NSKT Global understands the fraud risks for small businesses. We help small businesses reach their full operational potential by helping them to implement correct internal controls that will save them from staggering loss and fraudulent activities.
Still in a doubt? We are delighted to provide a free 20-minute business consultation. We want to dispel any doubts you may have and guide you towards a fraud-free business!