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Fraud & Risk Management

Fraud: Different Types and How to Mitigate Them


Fraud is a growing concern for businesses of all sizes. According to PWC’s Global Economic Crime and Fraud Survey, 49% of businesses worldwide were victims of fraud in 2018. This survey explains why more companies are increasing their spending on fraud mitigation. They’re investing in technologies to defend themselves against fraud.

This article will highlight some of the common types of fraud, their examples, and how they happen. It will also discuss some fraud mitigation measures and recommend the best solution to help you prevent fraud altogether.

Identity Theft

Business identity theft involves fraudsters stealing a company’s identity and using it to buy solutions by establishing lines of credit with retailers or a bank. Criminals target businesses because it gives them access to bigger account balances or higher credit limits. It’s also unlikely for large transactions to spark any suspicion. Criminals target bank statements, financial statements, or federal tax identification numbers – most of which they can get from your computer.

How to Protect Yourself from Identity Theft

  • Never share any critical information about your company online or publicly.
  • Educate your staff about identity theft and the things to watch out for so they’re ready if they come across one.
  • Always review your account statements, business registration information, and credit reports and make sure they’re as they should.
  • Invest in antivirus or security software that can access risks and help identify suspicious activity or fraud.

Payroll Fraud

According to the ACFE, payroll schemes are twice as common in small businesses compared to large ones. They are also one of the most common types of corporate fraud and are often committed by employees trying to get money they aren’t entitled to from their workplace.

Examples include ghost employee fraud, timesheet fraud, fraudulent claims over some units produced, and false expenses fraud. Others are sick leave fraud, misclassifying employees, commission and bonus fraud, and pay rate falsification.

How to Protect Yourself from Payroll Fraud

  • Limit access to payroll information and only give specific staff members who need it to perform essential functions.
  • Train employees about various payroll frauds and the negative impacts they have on the company. Also, provide them with directions on how to report and mitigate fraud.
  • Always review payroll reports and check variance reports that flag anomalies.
  • Have clear policies in place that convey zero tolerance for incorrectly logging time, inflating commissionable sales, checking, checking more PTO than allotted, fraudulent expenses, and more.

Return Fraud

As the name suggests, this type involves returning products that shouldn’t be returned, thereby stealing from a business. Although some cases end up being an honest mistake on the customer’s side, return cases are on the rise.

Return fraud can lead to poor customer experience, increase operational costs, and cause you to lose profits. Some common examples of this include receipt fraud, price tag, switching, returning shoplifted items, wardrobing, and shoplifting.

How to Prevent Return Fraud

  • Have a clear return policy and make it easily accessible for customers
  • Only issue returns to customers who have receipts in hand
  • Place a time limit on return
  • Limit cash returns to a minimum and give store credit instead
  • Ask for the identification or specific contact details for Returns
  • Consider having restocking fees, where legal and applicable

Financial Fraud

Financial fraud can include:

  • Embezzlement involves the unlawful use of money by a person who controls it. For instance, a bookkeeper may use company funds for her own needs.
  • Internal theft happens when an employee steals company assets like taking office supplies or products the business sells without paying for them. It is one of the main reasons inventory shrinkage happens.
  • Skimming happens when employees take funds from receipts and do not record the revenue on the books.
  • Payoffs and kickbacks are where employees accept money or other benefits in exchange for access to the company’s business, creating a scene where the business pays more for goods or solutions than necessary.

Fraud Detection Software

Investing in fraud detection software is the best thing that businesses can do. This software screens transactions in real-time, cutting out the need for employees to review the order themselves. They also offer deep insight into user behavior and spot the implicit relationship between the behavior and the possibility of abuse and fraud.

Additionally, the software offers real-time operation tracking and reporting. You can track your key performance indicators in real-time and monitor orders, learning about their status and information like location, payment method, and channel. Contact us today to learn more about fraud detection software.

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