One of the most common ways companies end up losing massive amounts of money is through fraudulent activities. Whether it is because of an external attack or an internal job, small business fraud can have quite serious and devastating consequences, so prevention is absolutely necessary. However, we need to understand what exactly fraud is in order to successfully prevent it in our company.
Understanding the different practices that constitute small business fraud will help us develop more successful and accurate prevention strategies. Also, becoming familiar with the different types of fraud will be of great help, too. This will allow us to create effective practices that will hinder any fraud attempts from inside or outside our company.
What Exactly Is Small Business Fraud?
The very first thing we need to understand is the definition of small business fraud. There are two different kinds of fraud, which are fraud by commission and fraud by omission. The first one implies someone intentionally stated a fact that is not true in order to obtain something in turn. Fraud by omission means someone intentionally omitted a fact, again, for their own benefit.
We should remember that fraud is usually a civil crime that, in some cases, can be criminally prosecuted by a government entity. We should also keep in mind that fraud represents a loss for the victim, and without evidence of such loss, fraud charges can’t be brought.
Different Types of Fraud
Besides the two different kinds of fraud, there are also different types of small business fraud we should be aware of. The most common examples include bankruptcy fraud, employment fraud, insurance fraud, wire fraud, and identity theft. The Balance defines each of these fraud types as follows:
- Bankruptcy fraud, which might include hiding or undervaluing assets, concealing information about the company or destroying documents
- Employment fraud, falsifying information on an employment application or not reporting convictions and felony charges before hire
- Insurance fraud, claiming an injury or falsifying insurance claims documents
- Wire fraud, using electronic communications (including Internet, TV, or radio) to make false representations
- Identity theft, stealing business information, usually electronically, and including tax information and credit card fraud.
How to Prevent It?
Preventing small business fraud can sound like a daunting task at first. However, working to minimize the number of fraud threats and activity isn’t that hard, either. To begin with, preventing fraud that comes from inside requires paying more attention to who we hire. Running background checks on all new employees, informing them of our fraud prevention practices, and paying attention to our financial responsibilities are key.
Also, in order to prevent external fraud attacks, we need to set up different systems that monitor our activity. This should cover critical areas that could represent a breach, including employees, customers, and vendors. Constantly monitoring our company’s activities will also help us make sure no potential breaches or threats can harm our business. After all, we must look after our company the way we would look after ourselves.