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The Most Common Types of Fraud in Small Business: Find Out Fraud Schemes and Be Aware

types of fraud

Doing business is not as easy as it sounds. Every businessman overcomes difficulties on the way to success. And when an unexpected circumstance occurs, then everything can only get more complicated. For example, a pandemic, natural disasters, or fraudulent attacks. If it is impossible to prepare for the first two cases, then fraud can be dealt with both before and after. Corporate fraud schemes are common and as an entrepreneur, you need to make quick decisions to protect your business. Therefore, we suggest that you familiarize yourself with the types of employee frauds.

Fraud in Companies: The Most Common Types

Small business account manipulation is the most frequent occurrence. The average loss from fraud is about $ 160,000 per year. Unfortunately, visually you would not be able to determine which of the employees is trying to cash in on your business. However, you can recognize the schema itself by knowing the small business fraud examples.

Misappropriation of Assets

Misappropriation is carried out using false documents. These actions are usually performed by employees bypassing internal controls. This type of fraud is divided into two types. Do you think the misuse of assets is a scam? This is the first type. For example, using the company’s car for personal entertainment purposes, renting tools and equipment purchased by the company to third parties, etc. Employees who abuse assets can make the company a participant in illegal activities. Which fraud is committed by an employee who doesn’t record customer sales and pockets the payment? This is the second type of misappropriation — cash theft. It involves withdrawing funds before they enter the accounting system. Since the company does not technically have data on capital inflows, this is difficult to figure out. Some examples of such misappropriation include payroll plans, debt cancellation, fake checks, etc.

Payroll scam

payroll scam

Payroll scam d is one of the most common types of fraud using the company’s pay system and occurs in 30% of businesses. According to statistics, illegal activities usually last an average of 30 months and go unnoticed. Small businesses are at a higher risk of such fraud because there are usually fewer controls. This type of fraud can include prepayment fraud, timesheets, etc.

Accounting fraud

accounting fraud

It is one of the famous types of fraud in accounting. This type of fraud occurs when employees deliberately manipulate a company’s accounts so that assets are overvalued and liabilities are undervalued. Whoever commits this crime also does everything to make the company look financially stronger than it really is. This makes it easier to hide the theft. Usually, this is someone from the management position who has access to the company’s accounts.

Data Theft

Thanks to technological progress, companies have adjusted the way they produce documents, from storing paper documents in steel boxes to storing digital copies of all company documents on a hard drive. However, despite the many benefits of digital rather than physical information, one problem continues to arise — data theft. This type of fraud is especially serious for companies whose products or services are based on intellectual property rights. Data can be sold to fraudulent companies. Data theft has a serious impact on fraudsters, as it could even entail FBI involvement and at least 10 years in prison, such as stealing information about hardware and prototype self-driving cars from a former Apple engineer. He was later arrested at San Jose airport while trying to fly to China at the last minute to avoid charges.



Corruption causes companies to lose about $ 250,000 on average. In most cases, this is the cause of a sharp drop in employee morale and a sharp drop in the value of a company’s stock. These types of fraud can include bribery, kickbacks, shell company scams, and product substitutions.
The purpose of our article is not to arouse unreasonable suspicion in you, but to call for vigilance. Often an employer cannot catch a fraudster because they do not believe in the involvement of their employees. Of course, you should not blame everyone, but it would never be superfluous to conduct checks. Do business with integrity and avoid dangerous situations, including tax fraud. See you!

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Author of article

Caleb-Joshua Mashrooman

Interests: finance, legal advice, golf, economics

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