25 Examples of Small Business Fraud, Embezzlement and Workplace Theft

adminSmall Business Fraud

It’s one of the worst things that can happen to your business—embezzlement by a trusted employee.

This isn’t a scenario you ever want to consider, but a savvy business owner knows that small business theft and small business fraud can be all too common.

That’s why a professional risk assessment for fraud and corruption is crucial to ensure your business isn’t being taken for a ride. Here are twenty-five examples of small business embezzlement that a risk assessment will look for.

1. Overcharging Customers

Overbilling customers is a common form of embezzlement. It’s also a particularly insidious one since it can be difficult to detect.

Overcharging involves an employee who makes continuous extra charges or “fees” to a customer and then pockets the extra money. Sometimes this is done through double billing or charging for small items that a customer didn’t buy.

Look out for this fraud by paying close attention to customer complaints and conduct periodic audits of customer billing.

2. Fake Payments

This is another common form of small business theft.

In this instance, an unscrupulous employee might conceal the theft of company funds as a non-existent vendor payment. This might even involve false invoices and accounting tricks to hide the evidence further.

Pay close attention to bank statements and vendor invoices. Familiarizing yourself with your business’ numbers will help you spot these fake payments.

3. Overtime Fraud

These schemes can involve regular payroll fraud, in which an employee pays himself for non-existent overtime. Or, it may consist of employees conspiring to cover for one another.

Audit your electronic timesheets regularly, and look for unusual overtime pay increases to prevent this sort of payment forgery.

4. Stealing Office Supplies

This is one area that you might not think a risk assessment would focus on.

But office supplies can be expensive, and over time they add up. And some employees seem to feel entitled to take as much of them as they wish. In fact, they might not even be aware that they’re committing a form of small business theft.

It might be a good idea to limit the number of office supplies on hand. If you do catch an employee helping themselves to these materials, try discussing restitution with them. They may not have known that what they were doing constitutes theft, so make it clear that the behaviour cannot continue.

5. Cashing Customer Cheques

This is one of the most blatant forms of embezzlement you’ll come across.

In this situation, an employee cashes a customer’s cheque, keeping the funds that ought rightly to accrue to your company. A good way to prevent this sort of fraud is to closely track all customer payments and separate accounting and payment processing functions between different employees.

6. Forged Cheques

This is another common type of small business fraud. In this case, an employee forges company cheques or makes electronic payments to himself that haven’t been authorised.

The only real way to catch this form of fraud is to separate your business’s payment processing and accounting functions. Audit bank statements frequently to catch this sort of corruption before it grows.

7. Stealing Customer Data

This falls under the category of identity theft.

In this case, an employee steals credit card information—either from payments processed in person or over the phone. Some industrious employees might even sell credit card info to third parties.

Either way, you can prevent workplace data theft by using redaction technology for credit cards and regulating customer information access.

8. Fraudulent Reimbursements

Embezzlement of this kind involves an employee receiving two reimbursements instead of one.

The first payout is for a legitimate expense, on a company credit card, for instance. The employee then asks for reimbursement for the same purchase, pocketing the illicit cash. Reconcile bank statements to sniff out this common form of embezzlement.

9. Voiding Register Transactions

This scam works because an employee at a cash register voids transactions and then takes home the money.

There are ways to prevent this common form of small business fraud. New systems require manager approval to void sales, for instance, and one can also track high amounts of voided sales to detect fraudsters.

10. Petty Cash Embezzlement

This involves the simple felony of employees stealing small (or even large) amounts of money from the petty cash fund.

Avoid this form of theft by locking the petty cash in a safe of some kind or even using electronic surveillance equipment to keep an eye on your employees. A fraud health check can help you spot further vulnerabilities to embezzlement.

11. Not-So-Petty Cash Embezzlement

Sometimes, an unscrupulous employee might decide to pocket money from the cash bank deposits at the end of the day.

Usually, the amount of money will be small to avoid detection. But that money adds up and can damage your bottom line. It helps fill out the deposit slip yourself or alternate the job of depositing money at the bank between different employees.

12. Stealing Fundraiser Money

This is a pretty egregious kind of theft—but some employees can’t help themselves.

If your business is involved in charities and fundraisers, there may be occasions when money is siphoned away from these events. Again, the best method here is to have more than one individual involved in counting and collecting money.

13. Improper Use of Expense Accounts

Expense accounts are designed to cover those extra costs that come with working for a company.

But a common form of embezzlement is using an expense account to cover costs that are not business-related in any way. Detail what can be reimbursed and what can’t in your expense account policies, and demand a full accounting for any such expenses.

14. Inappropriate Use of Company Credit Card

Another common kind of small business fraud is when a company credit card is used to cover personal expenses.

This is a lot like the improper use of expense accounts. Embezzlement of this kind can also involve elaborate schemes to falsify accounting records. But having more than one person involved, in both accounting and the approval of expenses, can help obviate this problem.

15. Stealing Items

The outright theft of company products can be another common form of small business theft.

Internal theft is frequent in a small business without a strict inventory tracking system, where employees can pocket merchandise from time to time. Avoid this problem by installing monitoring cameras and using inventory tracking systems.

16. Returned Merchandise Fraud

If you own a retail or online commerce business or any other business that occasions returned merchandise, this kind of fraud can be widespread.

Employees, in this instance, will steal returned products for home use or to resell online. Using proper control systems to monitor returns can put a stop to this kind of theft.

17. Claimed Loss of Company Devices

If your business supplies employees with personal devices—a laptop, smartphone, tablet, etc.—an employee might keep the device, all the while claiming it was lost.

These days, however, it’s easy to track and disable lost devices, so there’s no real excuse to fall victim to this kind of fraud.

18. The Inside Job

This is the kind of major felony that can easily befall any business. Knowing your security routine, an employee burglarizes your business and makes it look like a random hit.

Using security systems and installing security cameras, however, can help mitigate this kind of workplace theft.

19. Creating a Rival Business With Your Resources

This less obvious form of embezzlement can be particularly galling.

An employee may create a business for themselves on your time, using your resources and contacts to achieve unearned success. This is theft, and there are measures you can take to prevent it.

Set firm boundaries with your employees to know what is and is not allowed on company time and with company resources.

20. Information Theft

The theft of company secrets and information and selling it to rivals is a serious crime. The loss of sensitive information to competitors can hobble your business, if not completely ruin it.

If you’re worried about this kind of fraud, ensure that ironclad legal agreements bind your employees.

21. Corruption and Bribery

In this case, an employee receives payouts, incentives, and even bribes from vendors, clients, or customers.

This can harm your business’ reputation and undermine your authority and the quality of work your company provides. Avoid this scam by keeping an eye on the kind of relationship between employees and vendors or clients. If it’s too close, it might indicate this sort of fraud is taking place.

22. Invoice Fraud

A common form of embezzlement involves an employee creating fake invoices. This is a way to charge for services or products that were never purchased and then pocket the money.

Auditing invoices and cross-checking can prevent this fraud from seeing that the invoiced products or service were actually purchased.

23. Insurance Scams

A scheming employee can try to make an illicit profit by filing false insurance claims or lying about injuries.

Prevent this by carefully reviewing all insurance claims and implementing strict policies.

24. Fake Employee Fraud

This type of scam is a little more complicated than your usual petty theft. It also requires a credulous or hands-off owner, one who isn’t paying attention.

The embezzler will put a fake employee on the books and retain the “extra” salary. Avoid this scam by paying close attention to the accounting and payroll of your business.

25. Payroll Fraud

There are many ways in which embezzling employees can commit payroll fraud. This includes basic fraud, like falsifying overtime to skimming monies earmarked for payroll and other taxes.

Using outside payroll services can help mitigate this type of fraud.

Get a Risk Assessment Today to Prevent Embezzlement

Embezzlement, fraud, corruption—sometimes these are the unfortunate costs of doing business. While you hope your employees are honest and trustworthy, it’s best to be prepared and perform your due diligence.

If you’re looking for a risk assessment for small business fraud and small business theft, go ahead and contact us at DARIS Group today. Our trained team of investigators and forensic accountants will identify any fraud or embezzlement in your business.