Common Types Of Business Fraud And How To Spot Them

Types of Business Frauds

Business fraud is a broad term that can encompass various fraudulent actions. The fact that mostly it’s the internal employees who are involved in these frauds makes them particularly difficult to spot. In some cases, spotting the fraudster may take months. So, it might be too late when you learn about a missing asset. It is why businesses must always be on high alert. It’ll help them identify frauds early on and take the necessary actions to prevent further losses.


The Most Common Types of Business Fraud

Asset Misappropriation

Have you noticed any missing documents or equipment? Is there any difference between the physical inventory and your records? If so, it could be a sign of asset misappropriation.

Asset misappropriation is when an employee steals company assets like a physical article, cash, or information. The motive can range from personal gain to a larger criminal enterprise. A reliable inventory tracking system and regular audits can help avoid asset misappropriation. It’s also highly recommended to conduct frequent background checks on employees to ensure they are not stealing.


Payroll Fraud

Payroll fraud manifests in different ways. A dishonest employee, for instance, might inflate their productivity or hours worked to receive more money. Some people may ask for a pay advance without any intention of returning it. Others might collude with a colleague to doctor their attendance records by clocking in and out on their behalf.

Payroll frauds are among the types of business fraud that small businesses suffer the most. Unfortunately, the only way to spot such fraudulent activities is by automating the payroll system and implementing thorough background checks. In addition, it will help ensure that only trustworthy people handle your company’s finances.


Invoice Fraud

Invoice fraud is when an employee deliberately submits a false invoice and charges for goods or services never sold. Creating a false supplier or manipulating an invoice to increase the amount owed are some of the standard techniques used in this type of fraud.

Usually, an employee in sales and accounting collaborates with a third party to defraud the company. To detect invoice fraud, companies should set up a system that flags invoices for review when specific criteria are met. This system must include regular internal audits and checks of vendor invoices. It’s also important to run thorough security checks before approving a supplier.


Financial Statement Fraud

Financial statement fraud is the intentional manipulation of financial records to conceal and distort the truth. It can take many forms, from hiding losses to overestimating sales.

Companies should regularly audit their records and accounts to detect financial statement fraud. They must also be vigilant regarding changes in accounting policies and implementing new procedures. For instance, if a company suddenly changes its accounting method to one that could easily be manipulated, this should raise some red flags.


Data & Information Theft

The business world is at the peak of the digital age. With technology, we can store sensitive data and access them securely from anywhere in the world. But unfortunately, cybercrimes such as data and information theft are becoming more common.

Data and information theft can be done by insiders or third-party hackers who breach the company’s security system.

Luckily, there are ways businesses can protect their data. Encrypting data, implementing two-factor authentication, and limiting employee access are some of the measures companies can take. It’s also a good idea to regularly audit the system and ensure that all security measures are up to date.


Multiple Payment Fraud

Multiple payment fraud is a business fraud in which an employee makes numerous payments to the same vendor. For instance, an employee could make multiple payments for the same invoice or request to pay invoices already paid.

This type of fraud is often difficult to spot because it involves manipulating the accounts payable system. Companies should use automated account reconciliation systems to spot abnormalities quickly and efficiently. Regular internal audits can also help ensure that all payments are accurate and legitimate.


People Also Ask

Since the types of business fraud aren’t always obvious and can take many forms, here are some questions that often come up when it comes to detecting them:


What are the Other Types of Business Fraud?

Tax fraud, money laundering, and bribery are other types of business fraud common in the business world. In addition, some industries may also be prone to insider trading and price fixing.


What Policies Should Companies Put in Place to Prevent Fraud?

Companies should implement thorough screening procedures, have a clear code of conduct, and enforce strict financial controls. Companies must also consider an anti-fraud and anti-corruption policy. It’ll ensure that any suspected fraud is reported and appropriately investigated.


Do Business Frauds Affect Everyone?

Yes, business frauds have a ripple effect. Not only does it affect the company, but it also affects customers, shareholders, and creditors. It can also significantly impact the economy, leading to an increase in taxes and a decrease in job opportunities.



Business fraud is an ever-present threat, and companies must take the necessary steps to protect themselves. Some types of business fraud may indeed be more challenging to detect. Still, with suitable measures, companies can safeguard their operations and finances. Strict policies and vigilant audits are at the frontier of a fraud-free business environment. You can also implement anti-fraud software to help detect any suspicious activity. But ultimately, it’s up to businesses to take the necessary steps to protect themselves from fraudsters.