What is Business Fraud and How to Prevent it

In this article, we’re looking at the different types of business fraud and how to prevent them.

At a time when new data legislation is coming thick and fast, and technology is advancing at lightning speed, business fraud may be becoming more rife.

London, Liverpool or Leeds defence lawyers will tell you that being accused of business fraud is one of the most damaging things that can happen to a company. It can lead to legal action, as well as a loss of reputation and trust.

In some cases, a company may commit business fraud inadvertently. So, in this article, we’re looking at the different types of business fraud and how to avoid these happening to your business.

What Types of Business Fraud Are There?

These days, there are many types of business fraud, and some of these are:

Financial statement fraud

With this type of fraud, a company’s finances may be tweaked or altered in order to make the company appear more successful than it actually is. For example, a company looking to secure a new lucrative contract might downplay losses to make the business seem more robust.

When a business is caught committing this kind of fraud there can be serious consequences both to the business owner and the business itself. To prevent this sort of fraud, business owners should adhere to financial best practices at all times, including independent audits.

Employee fraud

All too often, business fraud is an inside job perpetrated by an employee for personal gain. Employee fraud can take a number of forms including making dodgy deals or manipulating payroll in order to funnel company funds into an employee’s personal bank account. It can also be as simple as fiddling expenses.

The risk of this type of fraud can be minimised by limiting access to parts of the network or system which may create a vulnerability to fraud, and by adding layers of security such as dual signatories for payments.

Identity theft

This extremely serious type of fraud occurs when a person is able to access another person’s private data, including financial data, in order to assume that person’s identity and to subsequently gain credit or cash. Often, this type of fraud will occur accidentally through an employee making an error. However, the company will still be held liable and may face legal action for identity theft fraud.

Businesses can help to prevent this kind of fraud by making sure that GDPR laws are followed to the letter and ensuring that employees are educated when it comes to data protection laws.

Tax fraud

Another relatively common type of fraud occurs when a business does not pay the correct amount of corporate tax. In recent years, a number of high profile businesses have been ‘named and shamed’ for aggressively dodging tax by shifting revenue and profits through tax havens. These include Facebook, Google, Netflix and Amazon – the latter being the most prolific offender having paid only $3.4 billion in tax in a decade where it recorded profits of $26.8 billion with an overall revenue of $960.5 billion.

While tax fraud is sometimes a result of a company deliberately taking measures to avoid paying tax, it can also be accidental. To avoid this, a business owner should always make sure that qualified personnel are hired to take care of tax related accounting.

Cyber fraud

In some instances, data and finance fraud occurs through a cyber-attack on the company’s systems whereby a hacker will infiltrate systems and gain access to data and financial information. This is often conducted through ‘phishing’ – a process in which a hacker will send legitimate looking emails to employees containing links which, when clicked on, allow the cybercriminal access.

Employers should prevent cyber fraud by making sure that their security systems are as robust as possible, and by educating staff in security protocols such as flagging any suspicious emails and avoiding using public wifi with business laptops and devices.

Fighting fraud from the inside

As we’ve highlighted in this article, business fraud isn’t always about dodgy bosses cooking the books in order to pay themselves fat bonuses. All too often, business fraud is the result of simple error or carelessness. But, either way, fraud or even an accusation of fraud can be extremely harmful to a business as it can lead to a severe loss of trust for customers and investors.

It can, of course, also lead to legal action which may signal the end of the line for the business. In order to prevent fraud, business owners need to take a proactive and aggressive approach, and this should include:

● Installation and maintenance of robust system security, including placing blocks on suspicious emails coming in or out of the company.
● Training and education of employees.
● The introduction of security protocols such as dual signatures required for payments.
● Employee background checks.
● Independent audits for finances and taxes.

Seek a Solicitor for Business Fraud Issues

Although some types of fraud are committed by a person outside of the business, security always begins on the inside. It is the responsibility of the business owner to ensure that adequate measures are taken to limit the risk of any type of fraud.

In the event that a business is accused of any type of fraud, the owner should immediately seek advice from a business solicitor who will be able to help them to minimise the damage.

Please be advised that this article is for general informational purposes only, and should not be used as a substitute for advice from a trained business professional. Be sure to consult a business professional if you’re seeking advice to avoid fraud. We are not liable for risks or issues associated with using or acting upon the information on this site.