5 Types of Fraud that Can Harm Your Business

business fraud

Business owners have a lot to worry about on a day-to-day basis, including everything from employee issues to customer complaints to marketing. One of the last things owners contemplate is internal business fraud even though statistics indicate that various forms of financial and other fraudulent practices are more common than most people think. In fact, the Association of Certified Fraud Examiners (ACFE) estimates that as much as five percent of revenue is lost to fraud annually. Business fraud almost always involves someone stealing money from another person or business entity through alleged but illegitimate business dealings.

Our law firm works with businesses of all sizes across a variety of industries and we see fraud-related problems pop up more often than we would like. We hope this article on the five types of fraud that can harm your business will help business owners and those in positions of power within companies learn how to spot trouble before things go too far and even prevent issues from arising in the first place.

Five Common Types of Business Fraud

While there are many types of business fraud, some are more common than others. Some parties use fraudulent tactics to induce others to enter into transactions that are ultimately to their detriment. Others transfer assets illegally to avoid paying debts. Some companies and/or their agents or representatives act dishonestly to give themselves an advantage. But within a business, the following five types of fraud can cause serious harm to a company and even become so severe that they destroy a business permanently:

  1. Payroll Fraud: Payroll fraud occurs in many ways, including lying about hours worked, failing to repay pay advances, issuing unauthorized bonuses, unauthorized pay rate increases, creating “ghost” employees, and more. Someone with access to your payroll system or who gains access to it will steal money by couching it as paying someone for their work. Payroll fraud is almost always electronic so be sure to have the appropriate cybersecurity measures put in place to prevent it. This type of business fraud is twice as common in small businesses as it is in larger companies.
  2. Asset Misappropriation: When an employee who is unauthorized to write checks forges them or an authorized signer writes checks to themselves, this constitutes asset misappropriation. This is the most common type of employee fraud because it can be the easiest to commit. Employees either steal financial assets like funds from a company account or non-cash assets like taking office equipment or supplies without permission. The best way to prevent this type of business fraud is to maintain detailed financial records and inventory statements and reconcile them regularly.
  3. Data Theft / Identity Theft: When someone who works with you steals your client list, credit card numbers, or other personal or business information and uses this for pecuniary gain illegally, that is data theft. Identity theft could cost your business thousands of dollars or more, so secure any paper items in locked cabinets and be sure to password protect all digital files.
  4. Financial Statement Fraud: Someone involved in a business can commit financial statement fraud by manipulating financial records to make their assets or net worth seem greater and their liabilities or debts seem smaller in order to make other financial transactions like securing a loan. Financial statement fraud involves the deliberate misrepresentation of a company’s financial condition through misstatements and/or omissions to deceive others.
  5. Tax Fraud: Also called income tax fraud, this type of business fraud involves deliberate actions designed to get around tax laws and/or to defraud the Internal Revenue Service (IRS). This occurs when a business or individual fails to pay the taxes they owe or fails to file a tax return as required. Tax fraud also occurs when a person or entity falsifies information on a tax return to limit their tax liability.

Amarillo, Texas Lawyers for Business Fraud Matters

Business fraud involves using deception and/or manipulation to gain something for yourself, which is usually money or property, therefore unfairly depriving a business of what rightfully belongs to it. Allegations of fraud are very serious and can sometimes include criminal charges, so if you suspect you are a victim of business fraud, it is important to immediately engage the help of experienced Texas business attorneys. To achieve a favorable resolution, our team of experienced lawyers evaluates each case individually and utilizes all the resources available.

We will work with you to evaluate your situation and take the necessary steps to protect your business and its assets as well as your own personal assets if needed. Our lawyers have the experience and successful track record needed to produce results. If you believe you have been a victim of business fraud, contact us today to learn more about your legal options.

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Talk to a member of our legal team today. We are Board Certified in Oil, Gas and Mineral Law; Civil Trial Law; and Personal Injury Trial Law by the Texas Board of Legal Specialization. We have won awards including Texas Super Lawyers Rising Stars in Energy & Natural Resources and Texas Super Lawyers in General Litigation and Personal Injury. Many of us are rated AV Preeminent by Martindale-Hubbell – the highest possible rating for ethics and skill in our industry. All communication is kept confidential and private.