Many employees and business partners like to target businesses for easy money, simply because things can get lost under the radar of a business' finances. It may not be until inventory or until your accountant draws up taxes that you notice something is wrong. Here are some common fraudulent schemes, and how you can both avoid them.
This is the most common type of fraud in business, accounting for 85% of occupational fraud. It includes employees stealing or using company assets. In an office, this could mean that an employee takes ink cartridges or paper home for personal use. In a restaurant, it could mean that an employees eats a meal without paying for it. Either way, it means larger bills for the business owner.
Business partners can also be guilty of asset fraud, even if they co-own the business with you. Just because you own the business does not mean that business assets are personal assets, If you notice that a partner is guilty of stealing assets from the business, it is time to sue for sole ownership of the company. The best way to do this may be to use a mediator to divide and appropriate assets to the deserving partner. You should choose a mediator that has in-depth knowledge of business law.
Another common and expensive type of business fraud is payroll fraud. This usually occurs when the person in charge of payroll redirects funds in order to pad his or her own paycheck. This is actually easier to do than you may think, and may continue for a while before you notice. Common methods of payroll fraud include:
- Keeping former employees on the payroll, but directing their payments into a second check for the clerk.
- Adding fake employees to the payroll, often with real social security numbers.
- Manipulating taxes, like social security, so they are not deducted from checks.
- Reprogramming payment software to increase wages or pay two checks for each pay period, instead of one.
- Increasing the percentage of commission for sales.
The best way to avoid payroll fraud is to prevent one sole person from being in charge of financial payments. Also, it's important to hire separate people for accounting, payroll, and human resources. Always run a criminal and credit background check on people who will handle money in your business, and never trust someone who is a friend or family member.
Ordering supplies is part of any business, and the people you have in charge of managing weekly orders of food or office supplies are in a prime position to skim some extra money if you are not carefully reviewing your invoices and receipts. For example, an employee may over-order on office supplies, return the surplus to the supplier, and pocket the cash.
Another area where your employees can commit fraud is in the area of submitting and completing invoices by external companies. For example, if you have an HVAC repair, and the repair bill is $300, your employee may manipulate the invoice to read $600. He or she will pay the creditor, and then pocket the extra cash. This type of fraud can be difficult to catch because most amounts submitted by invoice appear to be normal repair or work costs. It's a good idea to hire a forensic accountant in order to catch fraud of this type.
If you find that your partner or employee is not following the law and stealing from your business, you should not hesitate to take legal action. You should report all instances of employee fraud to the police, and in the case of partners, take legal action so that the company is no longer in danger from fraudulent business practices. Talk to a lawyer about further action that you can take to recover money and ownership of your business. For less severe cases you can also enlist business mediation services.