No matter how big or small your organization is or what industry you’re in, companies of all kinds and sizes face a common threat—business fraud. Scammers can cause serious harm and may even ruin your business permanently. Small businesses are especially vulnerable as they may not have the resources to withstand the potentially devastating impact of being blindsided by a successful scheme. If you own, run, or are starting a business, you need to know about these deceptive practices.
4 Types of Business Fraud to Look Out For
Here are just a few types of business fraud to watch out for:
1. Cybercrimes
Digital information theft is now the most commonly reported type of fraud, surpassing physical theft. These days nearly all businesses have some sort of online presence and are thus prone to hackers. A cybercrime occurs when, for example, someone steals your client list, credit card or bank account numbers, passwords, or other business or personal information, and uses the stolen data for financial gain. A sound cybersecurity plan should include, at a minimum, the following safeguards:
- Antivirus software and firewalls
- Regularly updating all devices to the most recent security software
- Password-protected Wi-Fi networks
- Business data backups
Employees should also be trained on basic IT security procedures including the use of strong passwords and safekeeping of client information.
2. Asset Misappropriation
Misappropriation involves stealing money or other assets belonging to the company. Embezzlement occurs when an unauthorized employee forges a check, or when an authorized employee issues a check to himself. Skimming means stealing cash before it is accounted for in the register or point of sale. Taking office supplies and equipment without the company’s permission is also a form of employee theft. It’s the easiest type of fraud to commit and is often not so easily discoverable. Keeping detailed financial and inventory records and conducting regular audits is the key to stopping this type of fraud.
3. Payroll Fraud
Businesses are also susceptible to payroll fraud, which occurs when an employee lies about actual hours worked, manipulates clock-in times, or fails to pay the employer back for pay advances. Thorough background checks on all new hires are a good place to start to prevent this type of employee fraud, while payroll audits can help a company catch it early on.
4. Intellectual Property Theft
Intellectual property is generally protected through patents, trademarks, copyrights, or trade secrets. Unfortunately, advances in technology have made it easier to steal a company’s valuable proprietary information. But intellectual property can be stolen in many ways. Copyrighted works such as movies and music may be illegally infringed by distributing or reproducing unauthorized copies, like what Napster accomplished decades ago. A trade secret can be underhandedly stolen by a company insider or an outsider who then uses it to benefit a competitor.
Contact Our New York City Commercial Litigation Attorney Today
Occurrences of business fraud are more frequent than you might think. Employees, customers, and vendors are all potential scammers. Recognizing the types of fraud in business, however, is only half the battle. Businesses must not only know how to avoid being swindled and take the appropriate preventative measures to reduce the risk of becoming a victim of illegal activity but should also be ready to take corrective action to stop it from getting worse and mitigate the damage once the fraud is discovered.
If you suspect that your business has been defrauded, it is important to start your investigation right away and conduct it as thoroughly as possible. You should also consider hiring a commercial litigation or business law attorney to advise you of your rights and all available legal remedies to try to recover what was lost. Contact Levy Goldenberg LLP today for an initial consultation.