Business owners have many things to worry about while they are running their businesses. One potential issue that should not be overlooked is the potential of a business to fall victim to fraud. Fraud strikes businesses of all sizes, and it can be perpetrated by people from within an organization or from outside of it.
In the 2018 Report to the Nations, the business fraud statistics are sobering. In 2017 alone, fraud examiners investigated 2,690 cases and found substantiated fraud. The fraud cases involved more than $7 billion in total losses, and the median loss was $130,000.
Small businesses lose nearly double in business fraud schemes than larger companies. One of the causes of business fraud in small companies is that most smaller companies do not have strong internal controls to prevent and deter fraud. Other causes of business fraud include the following:
- Job dissatisfaction
- Access to the company’s funds
- One employee assigned responsibility over accounts
- Employee facing financial pressures
It is important for businesses to take proactive steps so that they can prevent themselves from falling victim to internal and external business fraud.
Types of business fraud
Fraud can harm businesses of all sizes, but business fraud can have an outsized impact on small companies. Companies that have fewer than 100 employees may suffer irreparable harm when they are victimized by fraudsters. Some businesses that experience business fraud may be forced to close.
Fraud can be internal or external, and it may be perpetrated against individuals within a company. Fraud may be perpetrated by for-profit businesses such as construction fraud. Non-profits and churches are not immune to fraud. Non profit fraud and church fraud are pervasive problems, making it important for them to institute strong policies and controls to stop fraud.
Some of the types of business fraud that can occur include the following:
- Check fraud
- Card fraud
- Fraudulent reimbursements
- Medicare and Medicaid fraud
- Petty cash thefts
- Tax fraud
Smaller non-profits, charities, and churches may be especially vulnerable to fraud. Because of the nature of their work, many non-profits and charitable organizations may be too trusting of their employees. Some workers may take advantage of this trust and steal from their employers. When the organizations are small, the damage can cause them to close their doors permanently.
It is important for businesses to familiarize themselves with the different types of fraud that can occur. In addition to having strong security measures in place to prevent external thefts and fraud, they should have equally strong controls in place to prevent internal fraud from occurring. Having strong measures to detect fraud early can help businesses to prevent their fraud losses from ballooning. Businesses can also institute different payment systems that can help them to stop fraud from occurring in the first place.
- Common types of business fraud and how to prevent them
- Expense fraud hurts businesses
- Church fraud is estimated to increase to $110 million dollars a day
Examples of business fraud
Reading real cases of business fraud can help business owners to understand how they can prevent similar issues from happening at their own companies. One infamous case of accounting fraud occurred at WorldCom, a telecommunications company.
The company attempted to hide its falling earnings with fraudulent accounting practices. The chief financial officer and the chief executive officer were both imprisoned for their roles in the fraud scheme. In an ironic twist, the fraud scheme was discovered by Arthur Andersen, an accounting firm that would later be linked to the Enron fraud scandal.
A shocking case of non profit fraud happened at the Northern Children’s Services in Philadelphia. Sonja McQuillar served as the organization’s director of health and information. Over a period of 12 years, McQuillar embezzled $607,067 from NCS.
She did so by creating fraudulent consulting invoices for other people. She would then forge their signatures and cash checks that were made out to pay the invoices. McQuillar was sentenced to serve 30 months in prison and to repay the money that she stole.
Another case of fraud at a non-profit happened at Somerville Homeless in Massachusetts. In that case, the chief operating officer committed several types of occupational fraud, including fraud with credit cards and fraud with checks. The COO added money to his paychecks, put his adult son on his health insurance, and used the company’s credit card to pay for his own personal expenses.
The man was able to steal more than $108,000 over a period of just 18 months. Because of concerns about negative publicity, Somerville Homeless did not report the employee thefts to the police. It did report it to HUD, and the man agreed to repay a portion of the money in an agreement with the government.
Churches are not immune to fraud. However, many churches that fall victim to fraud fail to report it to police. Forbes reports that fraud is a pervasive problem for churches across the nation. In one case that was detailed by Forbes, a Catholic priest in Darrien, Connecticut pleaded guilty to stealing $1.3 million from the church’s collections.
Rev. Michael Jude Fay was sentenced to serve 37 months in prison. However, the two people who discovered his thefts and reported him also faced reprisals from within the church for publicizing his fraud. The bookkeeper and the assistant pastor who reported his thefts were both pressured to quit their jobs later by the diocese.
More fraud examples and case studies
- A disastrous case of accounting fraud
- Employee racked-up nearly $20,000 in occupational fraud case
- Learning the risks of credit card fraud by example
- Service quality institute: a parable for fraud prevention
- Non profit fraud through embezzlement of medicaid funds
- Non-profit fraud case study
- The need for fraud detection
- Church fraud cases can show your risks
- A church fraud case study: understanding the risk
- Lack of internal controls leaves company vulnerable to embezzlement
- Construction fraud case study demonstrates risks
The biggest anti-fraud organization in the world
The Association of Certified Fraud Examiners is the largest anti-fraud organization in the world, and it provides anti-fraud education and training. It is an organization of certified fraud examiners from around the world. Its members investigate suspected fraud at businesses, and the organization releases annual reports detailing their findings.
The organization reports that people who had been working at their companies for longer periods of time when their fraud schemes were discovered stole twice as much as people who had been employed for shorter periods of time. Workers who had been employed for more than five years stole a median of $200,000 while those who had worked for fewer than five years stole a median of $100,000.
There are some crucial steps that businesses can take to reduce their fraud risks. Some of these steps include the following:
- Institute proper controls
- Clearly define processes
- Close loopholes in the processes
- Automate controls and payment processes
- Have more than two employees check each other’s work
- Don’t give one employee too much control
By writing clear policies about expenses and payments and implementing controls, businesses can help to deter fraud and to prevent it.
Business fraud detection
There are several ways that you can detect fraud within your business. There are certain signs of which you should be aware because they are indicators that fraud might be occurring.
Detecting fraud is vital because fraud detection can help to end any fraud that is occurring much earlier, helping to prevent further losses. Fraud detection can help you to spot the signs. Some of the signs to watch for include the following:
- Employee living beyond his or her means
- Employee going through financial problems
- Employee is too close to a vendor
- Employee exerts total control an account
- Employee going through family problems
- Employee will not take vacation time
- Employee has addiction issues
- Employee is irritable and dissatisfied with his or her job
Detecting fraud is important because the cost of complacency is high. The longer that a fraud scheme lasts, the greater amount of losses that a company will suffer. Businesses that suffer fraud schemes that last for five or more years suffer median losses of $965,000.
- 10 questions to ask yourself about business fraud and employee theft
- How to find an embezzler
- Using a fraud tool can help find unwanted charges
- 4 Signs of employee fraud, and what to do about it
- 17 Red flags your client is hiding something
- Fraud alert: 10 ways you’re making it easier for employees to steal from you
How to report business fraud
If you discover that you have been the victim of fraud at your company, reporting fraud is important. There are several government agencies that handle reports of different types of fraud. Reporting fraud to the right agency and to the police can help you to potentially recoup your losses and to hold the responsible party accountable for his or her actions.
The U.S. government has compiled a list of agencies that handle different types of fraud complaints. You can check the list and file your report with the appropriate agency. The Office of the Comptroller of the Currency handles financial crimes. It states that you should report financial crimes to your local police or to the FBI.
You should not hesitate to report fraud that you have detected. When you do so, the fraudster may be held accountable and may be required to repay what he or she stole through restitution. Reporting fraud can also help to protect other companies from the actions of the fraudster. If you don’t report the fraud, other companies may be victimized by the fraudster in the future.
Business fraud prevention
Business fraud prevention can stop fraud from occurring in the first place. If you are wondering how to prevent business fraud, there are several things that you can do. The first is to understand the red flags. For example, if you concentrate too much responsibility for managing your accounts under one person, you are at a greater risk of fraud.
Preventing and deterring fraud is possible. You should start by determining your risk of fraud and then write a clear expense policy so that your employees understand what types of expenses are allowed and which are not authorized. You should train your employees about your policy and about the signs of fraud.
Employees should be encouraged to report suspected fraud. You should never let one person control your accounts. If you are a church, you should implement strong controls and have multiple people responsible for counting the collections from your collection plates.
Automating your payment processes and eliminating your employees’ access to your business funds can stop fraud. You can get rid of reimbursements, petty cash, and check writing at your company and use business debit cards that have strong spending control features. This can help because the data imports automatically, allowing you to have greater transparency into the spending and to control how your cards can be used.
- What types of fraud can you control?
- Reducing your risk of corporate fraud
- 10 tips to reduce construction employee fraud
- As a non-profit fraud prevention should be your top priority
- 5 fraud prevention strategies for small businesses on a budget
Tools to prevent business fraud
There are several tools to prevent business fraud that you should implement. Business fraud prevention tools may include a fraud calculator, which is a type of business calculator that can show you your fraud risks. Bento for Business has a free calculator that you can use to determine your risks. You can then take steps to correct the problems that you find.
Other business fraud prevention tools include expense policies and automated payment processes. Switching your company from outdated payment processes can help. Business debit cards can be good business fraud prevention tools if they offer you extensive abilities to control when they work, how much can be spent, and where they can be used.
- The importance of good anti-fraud techniques for businesses
- Using a fraud tool can help find unwanted charges
- An expense tool that helps manage business spending and lower fraud
- How company debit cards make a difference
- A church debit card can make tracking expenses painless and lower fraud
- Non-profit debit cards make expenses transparent and help prevent fraud
- Gascards help control business spend and reduce fraud for your small business
- Virtual payment card restricts unauthorized purchases and helps you prevent fraud
- The benefits of a Spend Management Strategy
How fraud calculators can help to stop fraud
Fraud calculators can help you to understand the risks that your business faces. When you use a business fraud calculator, you can identify the areas that you need to improve to help to prevent expense fraud and other types of fraud at your company.
Fraud detection is also vital. If you do not have good systems in place to detect fraud, you can suffer losses that could permanently harm your business. Using a fraud tool only requires you to answer a number of questions before you will receive a report that highlights the areas of needed improvement.
- What is a fraud calculator?
- Business fraud risk calculator
- The business calculator that will help your company the most
- Employee fraud risk calculator
Reading a fraud ebook is a good idea because it can help you to understand fraud so that you can prevent it. It can also help you to understand fraud detection and fraud detection techniques. These types of ebooks can help you to prevent the following types of fraud:
- Employee fraud
- Cash flow leaks
- Check fraud
- Credit card fraud
When you read ebooks about fraud, it can help you to understand the potential fraud solutions for your business. These types of books may also give you a better idea of how to properly engage in expense management at your company. Learning about fraud can help you to protect your business and to encourage its growth.
- Download our free fraud ebook to learn how to protect your business
- Free cash flow management e-book
Business fraud solutions
Bento for Business offers business fraud solutions for businesses of all sizes. The company’s debit cards come with extensive expense features and controls that allow you to control employee spending. In addition to business cards, Bento also offers church debit cards and non profit debit cards.
The business fraud solutions of these cards let you determine when the cards will work, where they can be used, and how much your employees can spend. You can turn the cards off remotely so that they will not work when your employees are not working.
You can also place restrictions on the cards so that they can only be used to make purchases from your preferred suppliers. If an employee attempts to use his or her card somewhere else, the attempt will be declined, and you will be notified. You can set individual spending limits on each of the cards that you give to your employees and see how your money is being spent by logging into your dashboard.
About Bento for Business
Bento for Business was founded by experienced finance industry professionals who wanted to offer meaningful business fraud solutions to businesses of all sizes. The Bento for Business Visa debit cards allow businesses to control the types of spending that their employees are able to engage in.
Bento has built a strong reputation as a leading provider of debit card and spending control solutions to businesses and has thousands of customers. Businesses are able to get packages to fit their needs at affordable prices.
The first two cards that businesses order per year are free, and companies can order 10 cards for as little as $29 per month. Bento has a free 60-day trial, allowing companies to try the cards before they make their decisions. To learn more about fraud prevention and how to control employee spending with Bento, call 866.220.8455.