Small Biz Fraud Prevention

Employee Fraud Stopped - Complete Controller

According to the 2016 ACFE Global Fraud Study Executive Summary, a typical organization loses 5% of its yearly revenues due to fraud. Corporations of different sizes tend to have various fraud risks. Corruption was predominant in big corporations, while check tampering, payroll fraud, and stealing were twice as common in small businesses.

ADP. Payroll – HR – Benefits

Frauds are often more common in small businesses as they lack special security checkups and foolproof systems. A small business may have installed accounting software but may lack many functions reserved for software purchased by big corporations. Even though you may have bought good accounting software for a small firm, there remains a chance of fraud. Usually, a single person is trusted to operate the accounting software and business bookkeeping in a smaller company.

Focus on these areas in a small business to minimize small business frauds:

  • Expense
  • Procurements
  • Payments

Top Areas to Monitor for Employee Fraud

Frauds come through these channels:

  1. Frauds through Purchase Order
  2. Misuse of Business Credit Cards
  3. Frauds on sales and receivables
  4. Payroll Frauds
  5. Information systems and critical data stealing
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Frauds through purchase order

  • Employee purchases goods that he intends for personal and private use.
  • The employee makes a vendor’s account in which he pays fraudulent invoices.

You can trace fraud through purchase orders by checking if the same person makes purchases and approves payments. You can also detect fraud if various split purchase orders are within an allowed limit.

Misuse of business credit cards

  • Many businesses give corporate credit cards to their employees when they are going on a business trip. When the credit card bill arrives, do not mindlessly sign the account. Before signing, check the outlets where you had used this card. You should not use your business money for any unapproved items or excursions.
  • Many frauds fall into a double billing fraud type. An employee uses the business credit card to make an expense. Then, he again submits the receipt for the same payment to reimburse the money. There should be a strict procedure to keep a check and balance on double billing frauds.

Frauds on sales and receivables

The employee develops personal contact with the sales representative and gets a commission.

Fraud tests can spot customer accounts receiving unusual discounts, customer reports having higher memos, customer accounts with high credit terms, and when the shipment address of sales is the same as employees.

Payroll frauds

Payroll fraud can be of the following types:

  • The payroll of a person who was terminated or died still exists in the payroll section
  • The payroll of a person who does not exist at all
  • Adding overtime payments to the payroll without permission or reasonADP. Payroll – HR – Benefits

Information systems and critical data stealing

Employees can steal and misuse critical data from a company’s information system. They can sell the customers’ data and information related to addresses and contact numbers to a third party.

Run specific tests on the computer system to check for data theft from your business database. The test will detect the accounts that accessed the database from their company’scompany accounts. Check if this employee had the authority and permission to log in to the company’s database.

If an authorized employee frequently logs into the system and there is no apparent need for such logins, monitor closely. Run tests to determine whether any data was copied and moved.

A unique software program runs discretely to detect emails carrying critical and essential company data.


No business is immune to fraud or theft. Employers should closely monitor the activities of their employees. They should focus on the above five areas that act as a channel of employee fraud. Employers must strictly observe the bookkeeping, mainly to prevent fraudulent activity.

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