What Are the Most Common Business Financial Fraud Schemes?
You’ve worked hard to build your business. The long hours, sleepless nights, and countless sacrifices were all for one goal: to create something successful and sustainable. But what happens when a trusted employee or an external scam threatens all that hard work? Financial fraud isn’t just something that happens to large corporations. Small and medium-sized businesses (SMBs) are prime targets, often because of weaker controls and stretched resources.
Let’s dive into the most common financial fraud schemes targeting businesses, how you can protect your company, and why having tight financial controls in place is essential.
The Most Common Financial Fraud Schemes
1. Payroll Fraud
What It Is: Employees manipulate timesheets, inflate hours, or create "ghost employees" to collect extra paychecks.
Real-Life Example: Linda Johnson, the general manager of a Wendy’s in Pennsylvania, was caught creating a fake employee, "William Bright," who supposedly worked 128 shifts over 22 pay periods. Johnson would clock in and out for the phantom employee, allowing him to earn wages that never went to an actual worker. A forensic audit uncovered that "William Bright" had a total gross pay of $19,898.15, which Johnson transferred directly to her CashApp account.
2. Expense Reimbursement Fraud
What It Is: Employees submit falsified or inflated expense reports, claiming reimbursements for personal expenses.
Red Flags: Duplicate receipts, vague descriptions, or excessive out-of-town dining expenses.
3. Vendor Fraud
What It Is: Fake vendors are set up to receive payments, or existing vendors collude with employees to overcharge.
Case in Point: Fake vendor scheme steals $1.5 million from California company by creating fictitious accounts.
4. Phishing and Business Email Compromise (BEC)
What It Is: Fraudsters impersonate executives or vendors via email to trick employees into wiring funds to fraudulent accounts.
Impact: BEC scams caused $2.4 billion in losses in 2021, with SMBs being primary targets.
5. Asset Misappropriation
What It Is: Employees steal inventory, equipment, or company funds for personal gain.
Example: An Amazon employee exploited her trusted position at Amazon to steal nearly $10 million through an audacious fraud scheme. By creating fake vendors and submitting fictitious invoices, she siphoned off the company’s funds for personal gain.
How SMBs Can Protect Themselves
Fraud prevention isn’t just about catching bad actors—it’s about creating systems and controls that make fraud nearly impossible. Here’s how you can safeguard your business:
Separate Duties
Ensure that no single employee has control over an entire financial process. For example, one person should handle vendor approvals while another processes payments.Use Technology
Invest in accounting software with built-in fraud detection and approval workflows. Regularly update your cybersecurity measures to guard against phishing and ransomware attacks.Monitor Financial Activity
Regularly review bank statements, reconcile accounts, and conduct surprise audits. Spotting unusual activity early can stop fraud before it spirals.Train Your Team
Educate employees about recognizing phishing scams and the importance of safeguarding sensitive data. A well-informed team is your first line of defense.Vet Vendors and Employees
Conduct background checks on new hires and due diligence on vendors. It’s better to be overly cautious than to place blind trust.Maintain Tight Financial Controls
Establish a robust approval process for expenses, payroll, and vendor payments. Require dual authorizations for high-value transactions.
Why Financial Controls Are Non-Negotiable
Even the most well-intentioned businesses are vulnerable without strong financial controls. Fraud doesn’t just hurt your bottom line; it damages employee morale, ruins trust, and, in severe cases, leads to legal consequences or bankruptcy.
Having the right checks and balances ensures that your business is resilient against internal and external threats.
Partnering to Prevent Fraud
Protecting your business from fraud is a team effort. At our firm, we specialize in helping SMBs implement strong financial controls and monitor for red flags. Whether you need an audit of your current processes or advice on new systems, we’re here to help you safeguard what you’ve built.
Don’t wait until it’s too late—contact us today to protect your business and your peace of mind.
Sign up for our newsletter.
Each month, we will send you a roundup of our latest blog content covering the tax and bookkeeping tips & insights you need to know.
We care about the protection of your data.
Junglebooks Affiliate Program
Why Partner with Us?
With years of experience and a team of certified professionals, we deliver exceptional results to our clients.
-
Industry-Leading Expertise
-
Our firm is a leader in the accounting industry, providing comprehensive services that include tax preparation, bookkeeping, financial planning, and business consulting. With years of experience and a team of certified professionals, we deliver exceptional results to our clients.
-
Attractive Commissions
-
We value our affiliates and offer competitive commission rates for every client you refer who signs up for our services. The more clients you refer, the more you earn.
-
Comprehensive Support
-
We provide our affiliates with all the resources needed to succeed, including marketing materials, dedicated support, and regular updates on our services. You’ll have everything you need to effectively promote our firm and earn commissions.
-
Trusted Reputation
-
Our firm has built a solid reputation for excellence and trustworthiness. When you refer clients to us, you can be confident that they will receive the highest level of service and satisfaction.
Frequently Asked Questions
-
This firm prepares tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. Our firm’s seasoned professionals are experts in all areas of taxation including:
- Individual Returns
- Payroll Tax Issues
- Business Returns
- Sales Tax Returns
- Rental Income Returns
- Business Consultation
- Expatriate Returns
- Fiduciary & Estate Returns
- Corporation Returns
- Bookkeeping
- Partnership Returns
- LLC Returns
-
Our firm offers a full range of planning services including, but not limited to:
- Individual Tax Planning
- Business Tax Planning
- Business Organization
- Rental Properties
- Foreclosures and Repossessions
- Retirement
- Investments
- Sales and Exchanges
- Pension Plans
- Education Planning
- Finance & Refinance Planning
- Home Purchase and Sale Planning
-
We are here for you twelve months a year, not just during tax season. Whether you have a simple tax question, need advice on the tax implications of a business decision, or want clarification on a government notice, feel free to give us a call.
-
We maintain a policy of the strictest confidence concerning our clients’ affairs. You can rest assured that no one will learn about your business or tax status – even relatives, associates or friends who might have referred you to us.