Charity Scams: A Small Business Perspective

Many businesses support their communities by donating to local charities. Although there are plenty of non-profits that deserve your support, some exist solely to facilitate fraud. How can you avoid the latter? Familiarize yourself with the deceptive tactics scammers use and carefully screen charities for legitimacy — before you write a check. Branding tricks Fraud perpetrators employ many tried-and-tested approaches to trick businesses into donating to fake charities. One of the most effective ways that they secure donations is by creating entities that resemble established non-profits. They use familiar-sounding names and familiar-looking logos. They also make their websites and marketing materials appear like those of the charities they’re impersonating. These scammers often use their fake branding in emails and on social media platforms. Not only do they hope...

Tips for Investigating Employee Fraud Tips

Occupational fraud is a crime generally committed by employees against their employers. Ironically, employees also are most likely to notice or suspect occupational fraud schemes conducted by their coworkers or managers. Whether they report through an anonymous tipline or directly to management or HR, rank-and-file workers often are the first to raise the alarm. If an employee alleges that someone has committed theft or fraud, or simply exhibits suspicious behavior, it’s your responsibility to take the charges seriously and investigate them. Here’s how. Preliminary digging If you receive a fraud tip, you’ll need to assess its validity by conducting preliminary interviews — even if you plan to eventually turn the investigation over to legal and fraud experts. To help avoid unnecessary legal complications, keep details of any allegation...

Preventing Fraud Losses Across Multiple Business Locations

If you operate your business in multiple locations (as with retail or restaurant chains), you face some extraordinary fraud-prevention challenges. After all, you can’t be everywhere at once. And the more locations you operate, the harder they are to monitor. Without the appropriate checks and balances in place, fraud losses in one store could threaten the health of your entire company. If you don’t already have one, consider implementing a robust antifraud program. A comprehensive strategy Whether you operate multiple locations as an independent owner or franchisee, fraud is an ever present risk. Depending on the products and services your business offers, employee, credit, returns and gift card fraud are all schemes your business potentially faces. Mitigating these risks requires a comprehensive strategy that doesn’t rely exclusively...

Early Revenue Recognition: Not Just Bad Accounting, But Fraud

Although financial statement fraud is the least common form of occupational theft (9% of incidents), it costs organizations the most in financial losses, according to the Association of Certified Fraud Examiners. Businesses defrauded by financial statement schemes had median losses of $593,000. Early revenue recognition, which distorts profits and can artificially boost a business’s financial profile, is popular among financial statement fraud perpetrators. To comply with Generally Accepted Accounting Principles and preserve your company’s reputation, you must prevent such activities on your watch. It’s also important to be able to detect them in the financial statements of business partners, including acquisition targets and customers applying for credit. Schemes and warning signs Owners, executives and others with access to financial statements might recognize revenue improperly by delivering products early,...

Keep Fraud Off Your Restaurant's Menu

The restaurant business is notoriously tough — even without the many fraud threats. The fact is, when you’re operating on very thin profit margins, you can’t afford to lose a cent to thieves. To protect your business from ill-intentioned employees, customers and vendors, take steps to fortify your restaurant against fraud. Gaps for exploitation Your restaurant may have high transaction volumes but lack the technology linking point-of-sale, inventory and accounting systems. This leaves gaps for fraudsters to exploit. Employees could, for example, provide food and drinks to friends without entering the sales — or ring up only a portion of their friends’ bills. They might issue voids or refunds when there was no original sale and pocket the proceeds. Or they could overcharge customers by, say, charging...

Generative AI Can Help Prevent, Detect and Investigate Fraud

You may already be familiar with artificial intelligence (AI) and even use it in business applications. What about generative AI (Gen AI)? Gen AI typically is used to create new content (such as text, images, code and video) from raw data and includes such popular systems as Grok, ChatGPT and DALL-E. Gen AI can also help reduce, uncover and combat fraud. However, there may be ethical and legal implications of using these applications. Digital decisions Fraud can occur when a perpetrator finds one or more weaknesses in a company’s defenses and exploits them, creating patterns of activity. Finding these patterns quickly is critical to minimizing losses. Traditional fraud detection engines rely on rules to detect suspicious activity. Once the technology detects a transaction that fits a pattern, the...

How Forensic Accountants Use a Lifestyle Analysis to Find Hidden Assets

Sometimes divorcing spouses or sparring former business partners illegally hide assets to prevent their fair division. And fraud perpetrators almost always try to hide their ill-gotten gains. In such cases, sociological information — gathered as part of a lifestyle analysis — can be almost as revealing as financial data. Here’s what forensic accountants examine when they’re on the hunt for hidden assets. Starting with numbers Forensic accountants usually start with numbers. For example, an expert typically reconstructs the subject’s income by analyzing bank deposits, canceled checks and currency transactions, as well as accounts for cash payments from undeposited receipts and non-income cash sources, such as gifts and insurance proceeds. A forensic expert also usually analyzes the subject’s personal income sources and uses of cash during a given time...

Fraud Prevention Strategies for Entrepreneurs and Small Businesses

Fraud occurs in companies of every size. But small businesses, especially new ones, have special risks because they generally can’t invest in expensive fraud-prevention programs. Thankfully, there are simple yet effective strategies that can reduce the likelihood of fraud, however small or new your company is. Understand the risk Fraud schemes can involve employees (occupational fraud) or third parties (including vendors, customers and cybercriminals). And sometimes, workers and outsiders collude to commit fraud. Fraud perpetrated by third parties includes identity theft, credit card scams, bank fraud and cyber-related schemes, including ransomware attacks. Occupational fraud usually falls into one of three major categories: asset misappropriation, corruption (such as bribery) or financial statement fraud. Although these potential fraud threats may feel overwhelming, know that they all have the same objective:...

Are Vendors Cheating Your Company?

Every year, U.S. companies lose millions of dollars to vendor fraud. These schemes can be complex and usually involve collusion of multiple suppliers or suppliers and employees of the defrauded business. Small businesses that don’t use sophisticated vendor software or don’t have other anti-fraud resources are particularly vulnerable. But knowledge is power. Learn what vendor fraud is and the simple steps you can take to prevent it. Predetermined outcomes Vendor fraud can take one of several forms. Price fixing, for example, is a common scheme in which competitors agree to set the same price for goods or services or jointly establish a price range or minimum price. Bid rigging is similar. It involves two or more suppliers agreeing to steer a company’s purchase of goods or services. Potential...

Beware of Disaster Charity Scams

As reported via IR-2022-119 on 8/4/2022 People should donate carefully after a disaster After an emergency or disaster, people rally to help victims by donating money. Unfortunately, this can give criminals an opportunity to prey on them by soliciting donations for fake charities. Scammers may also pose as federal agencies to dupe disaster victims trying to get disaster relief. People should always be suspicious of unsolicited contact. Scammers often contact their possible victim by telephone, social media, email or in person. Make sure your money is going to a reputable organization Thieves may pose as a representative of a charity to ask for money or private information from well-intentioned taxpayers. Scammers may set up bogus websites using names that sound like real charities. When a taxpayer searches for a...