How small businesses can fight fraud

Protecting a business’ employees, reputation and financial status should always be a top priority for any business owner. In today’s world of fast transactions and internet scammers, small businesses need to be alert and prepared for fraud within their company.

Most often, fraud is internal; it unfortunately happens at the core of the organization within personnel. Due to limited resources, many small businesses may not have the ability to monitor fraud, and typically employ friends or relatives under the guise of trust — but it is important to note that fraud impacts the bottom line.

The Association of Certified Fraud Examiners (ACFE) conducted a study from 2002-2018 that reported small businesses ranked highest in fraud frequency at 28 percent compared to larger organizations at a 22 percent to 26 percent. This data shows small business owners have limiting training and tools to prevent fraud. The following information should help with tackling this problem.


Generally speaking, fraud is a deliberate act to secure an unfair or unlawful gain. There are many different ways and tactics scammers use to gain access to business and conduct fraud.

• Social engineering fraud: Most commonly, this can be a false identifier who calls a business seeking information. The scammer will ask questions pretending to be connected to the company or sound trustworthy enough to obtain information.

• Phishing emails: We have all seen them. These types of scams are generated by hackers trying to collect data. Emails can come from an address similar to the company’s address and sometimes create a sense of urgency for an ask that could rush employees into making a decision before looking into it.

• Invoice/billing scams: This type of fraud typically uses scare tactics to intimidate a human resources staffer or the billing department into making a payment immediately or be sent to a collections service. The scammer can act as if banking information has changed, thus needing information for a payment to be rerouted.

• Check tampering: This type of fraud occurs internally where an employee and false vendor collaborate with one another to cash a check made to the false vendor. It may also occur if internal controls prevent any changes to a payee on a check are not set. On the register or software, it may appear the check was written to a valid expense; however, the payee is changed to the employee or related party to cash the check.


Fraud can take shape in many forms. Business owners should look at a variety of behaviors and examine every situation.

• Change in a trend, financially. Are bills not adding up by $10 or even $20? Are you spending more on a product or vendor then previous months?

• Has an employee made large purchases recently? New car, boat or lavish personal spends?

• Look into banking methods. Are you writing checks to pay invoices or handling with online banking? Different or multiple payment methods could cause discrepancies.

• Have you noticed gaps or multiple missed payments?


Small business owners can take proactive steps to catch fraud or untrustworthy behavior early on. Simple tips include:

• Be involved. Reviewing statements, invoices and expenses monthly can save a business owner from a potentially expensive situation.

• Employees should be aware these comprehensive reviews help identify and reduce financial errors, but also serve as a fraud deterrent.

• Set up internal policies and procedures to help keep individuals honest.

• Have more than one person with access or control of financial records.

• Use outside or third-party companies to review finances.

• Establish strong security across the business, such as computer security networks, firewalls/anti-virus infrastructure and employee background checks.

• Get insured. Having a good insurance policy can allow owners to cover damages and protect themselves against loss.


If a business suspects fraud, contact a certified public accountant (CPA). These trained individuals are qualified to research and review financial statements to help pinpoint fraud. If fraud has been identified, also notifying an insurance provider and filing a proof of loss will aid in recovery of funds. Lastly, dealing with suspected employee(s) in the form of an investigation or termination will hopefully halt fraudulent activity on the spot.

Unfortunately, no institution big or small is safe from fraud. Fraudulent activity is most likely to take place, and go unnoticed, when a business is doing well. Owners get caught up in the growth, development and expansion, leaving finances in the hands of someone they trust.

The best way a small business owner can protect and prevent against fraud is to be involved. Owners should have internal control, be educated about the risks, and equip themselves with the tools needed to aid themselves against fraud.

Jerry Mora is the vice president of business banking for SCE Credit Union.

Don't miss the big stories. Like us on Facebook.
pos-2 — ads_infeed_1
post-4 — ads_infeed_2