Small businesses face numerous unique challenges compared to large corporations and organizations. Among these challenges is the risk of being victimized by small business fraud. For small businesses, experiencing fraud can have significant and long-lasting consequences. But, there are ways to reduce the risk of small business fraud, to protect your company, and to pursue those who are responsible for defrauding you.
What Is Small Business Fraud?
Business fraud is often perpetuated by individuals within a business with the intent of gaining an unfair financial advantage. Typically, the fraud is conducted under the guise of legitimate business practices. Fraud can also involve materially misleading conduct.
Examples of small business fraud where the perpetrator is an employee of the business and defrauds the company itself include payroll fraud and cash theft. Payroll fraud can include things like having a co-worker clock in for an employee who has not yet arrived for work, or clock out for an employee long after the employee has left the office.
Payroll fraud can also include more insidious actions like payroll staff altering records to either create a non-existent employee or extending the pay of an employee who no longer works for the company. In these cases, the payroll staff then redirects that “employee’s” pay to themselves.
There are many other examples of ways in which payroll can be altered or abused in order to defraud a small business. Getting educated on these types of pitfalls can help a small business owner prevent falling victim to these schemes.
Cash theft is another example of small business fraud committed by an employee of the company. Cash theft is what it sounds like, the theft of cash. But, it can be done in different ways. Some businesses rely on cash transactions more than others. Businesses like food trucks, coffee shops, or hair salons tend to have more cash than perhaps other businesses might.
Not having a quality cash monitoring system may allow an employee to skim cash unnoticed that has not yet been reported. Sometimes an employee just outrightly takes cash that has been reported.
There are also schemes by people outside of a small business that try to take advantage of small businesses. One such common scam is false invoicing. Have you ever hired a contractor or business person to complete a job and get the invoice only to see a bunch of charges you don’t recognize? False invoicing is the same concept, vendors that work with small businesses charging businesses for bogus expenses.
What Are the Consequences of Small Business Fraud to a Business?
The impact of fraud on small businesses is often much more harmful than the same conduct might be on other organizations. This is because the proportion of loss to a small business compared with their revenue and personnel size can be extremely costly, if not deadly, to a small business.
All businesses feel the impact of fraud, of course. However, when a small business loses key personnel to fraud or a significant share of revenue or assets, it is much more difficult for small businesses to recover.
That is why it is so critical for small businesses to be vigilant and be aware of the signs of small business fraud in order to help mitigate the risk of fraud to that business.
How Do You Protect Your Business From Fraud?
The first step in protecting your small business is to mitigate the risk of fraud in the first place. Small business owners are incredibly busy, but a little oversight upfront can prevent a lot of heartache later on. Making sure to monitor things like payroll, putting a cash monitoring system in place to make sure cash doesn’t disappear, and always checking over invoices, even from trusted vendors, can help prevent you from being the victim of small business fraud.
Small actions with a robust system of checks and balances like opening bank statements yourself, tasking a department other than accounting with opening the mail, and having someone other than the person responsible for billing make the deposits, may also help curb fraud.
What Remedies Are Available for Victims of Small Business Fraud?
Unfortunately, a small business owner could do everything right and still be the victim of small business fraud. Technology has never been more sophisticated, and as hard as small business owners work, it is incredibly challenging to have your hand in every aspect of your business at all times.
If you have been the victim of small business fraud, there may be criminal charges you could file (such as larceny for stolen cash) or civil charges, which can lead to receiving damages to make up for the fraud.
Do You Need An Attorney if Your Business Has Experienced Fraud?
If you suspect that you have been the victim of small business fraud, an experienced business attorney can help navigate the case with you and ensure that your interests are protected. Contact a business attorney today for help with your case. Your attorney can provide you with legal advice, and, in the event of a conflict, can represent you in court if needed.