5 types of fraud every SMB should be aware of


May 25, 2019

April 18, 2019

Cathrine Andersen

Scam artists, criminals, and frauds do not discriminate. Anyone whose phone has been ringing with automated calls from unrecognized numbers can attest to that. Yet, a common misconception is that only individuals are targeted, when businesses, too, are affected by fraudulent activities.

And SMBs are particularly at risk.

According the 2018 Global Study on Occupational Fraud and Abuse, published by the Association of Certified Fraud Examiners, small businesses lost almost twice as much per scheme to fraud in 2017, with a median loss of $200,000 for companies with fewer than 100 employees. The data is clear, and the threat to SMBs is real.

Here are five frauds and schemes for SMBs to keep an eye out for.

Fraudulent Transactions
These kinds of fraudulent charges typically originate from stolen credit cards or hacked bank accounts. Why should SMBs be on alert? Because processing payment on fraudulent transactions and then honoring refund requests (aka, “chargebacks”) can be quite costly.

Clean Fraud
Is there such a thing? Yes. Using stolen information, data, and forms of payment, fraudsters can impersonate others to circumvent digital fraud detection measures. This has become increasingly common, and is far more difficult to detect than the outright fraudulent charge, which is far more likely to catch the attention of both business and the legitimate account holder.

Account Breaches
Hacking and other cybercrime can be used to steal passwords and gain illegal access to accounts. While it’s usually data breaches at large companies that grab headlines, many SMBs are left reeling from cyber attack every year.

Phishing Scams
Phishing is a tactic scammers use to coax people into voluntarily giving up sensitive personal information or even money. The most common examples occur through email and over the phone. For example, scammers might target SMB employees posing as the IRS to get W-2s, a scam that can compromise both employees and the businesses they work for.

Internal Theft and Fraud
In many cases, it’s internal employees, including members of accounting departments, that commit fraud. According to a study by Statistic Brain, employee theft totals $50 billion each year. Sometimes, it’s the way the accounting process is set up, with the person processing billing also depositing checks. Other times, people to endorse checks to themselves then delete invoices, or “pad” invoices for goods or services to skim off the top.

Final Thoughts: Look for the Warning Signs, then Automate
On the operational level, there are precautions SMBs can take to limit fraud. There’s the obvious warning signs: shipping address is different than the billing; requests for immediate shipment; strange email addresses. SMBs should be on especially high alert during tax and holiday season.

In terms of fraud prevention, SMBs can go digital and implement security measures like two-factor authentication. Bill pay automation with tools like Roger helps SMBs easily manage their approval flow, and make sure that no invoice is paid unless a certain amount of approvers have approved the transaction via their personal device.

Regardless of a company’s approach to prevention, fraud is an ongoing, ever evolving threat that’s especially pernicious in the SMB world. It’s important that these organizations protect their hard work by raising fraud awareness and taking tangible precautionary measures.