As the business world becomes highly advanced, competitive, and globalized, fraud proliferates in a more complex way and is harder to combat. While big corporations get hit repeatedly by ransomware perpetrated by cybercriminals from overseas, small business owners are even more vulnerable to both local and international con artists.

This makes sense for various reasons; for a start, most small businesses lack vital resources to implement internal checks and balances in their accounting system. Again, the employees in the accounting department are sometimes assigned multiple tasks that may or may not fall within their skill sets.

Finally, although the small business owner may try their best to cultivate a culture of trust among employees, that may not be enough to curtail theft by full-time employees or contract workers, which can be as real as external con artists. Fraud can plague any small business — but unmitigated fraud can hurt the bottom line in a way that may cause the business to fold up.

While enjoying the thrills of success from their passionate investment, small business owners need to be prepared for bigger challenges like cash flow monitoring. That said, successful small business owners need to maintain a high degree of oversight in their financial affairs.

This article will detail the popular types of fraud a small business may encounter.

14 Common Types of Small Business Fraud

It can be hard figuring out how con artists may target your small business because different types of fraud exist. Here, we've detailed the common types of frauds right now, the potential signs, and how best to mitigate them.

Payroll Fraud

Payroll fraud occurs when employees manipulate the payroll system to receive payment for work not done. In fact, 27% of all businesses experience payroll fraud and small businesses are affected twice as often as big corporations. Some potential warning signs include:

  • Flaws in payroll records
  • Employees not taking PTO
  • Employees using duplicate paychecks
  • Employees living way beyond their means

Payroll fraud can be prevented by proper monitoring of payroll reports, payroll auditing, or seeking the services of professional and reputable payroll providers.

Cash Theft

Cash theft is one of the key aspects of asset misappropriation, which may also take the form of check tampering, accounts-receivable skimming, fake billing, and payroll schemes. There are several ways cash disappears in a small business. First, it could be through fraudulent disbursement of cash — cash released by an employee that the owner did not authorize. Sometimes, employees also take the cash that has not been reported into the accounting system and use it for other purposes not related to work. This can harm the business in the long run.

Online Banking Fraud

Cybercrimes are becoming more sophisticated and any little security breach in your online bank details can lead to online banking fraud. Employees who are not trustworthy can use the company's bank details in their possession for malicious purposes. Scammers can also use high-tech strategies such as phishing, malware (software), and vishing (phone numbers) to tamper with your online banking account details. A red flag is when money goes missing from the account without a trace.

Staying updated with cybersecurity measures is a way to protect your business from online banking fraud. Also, only give sensitive online banking details to trusted employees and ensure to report to the financial institution in charge of your bank account as soon as you notice such unaccounted deductions. Additionally, you can contact the FTC or the FBI for guidance.

Invoice Email

This type of fraud involves employees sending illegal emails to clients informing them of changes in payment details. It is usually not easy to detect this type of fraud as business owners can only be alerted when clients complain of such emails or when they don't get paid for a service rendered.

Giving your company's official email access to only trusted employees can go a long way to prevent this scam. You can also do regular account check-ins and create awareness among clients about the official bank account details for payments.

Phishing Emails

Phishing emails are designed to get valuable information about your business bank account details or other sensitive information that can be used to siphon funds from your business bank account.

Always try to verify the genuineness of any email that requests card details or other sensitive information. Additionally, avoid clicking on suspicious links from an unknown email as it may take you to a website that'll request your credit card numbers or passwords for payment purposes or other reasons. It is also important that you have up-to-date antivirus software and firewalls installed on your office computer to avoid phishing scams.

Insurance Fraud

Employees can sometimes file bogus claims related to fake or mild workplace injuries. They may demand large health care compensation. Installing security cameras in your business location can help. It is also very good to have sufficient health insurance coverage to protect yourself from such fraudulent scenarios. In addition to health insurance fraud, unemployment insurance fraud is another common insurance fraud. However, both the employer and employees are sometimes guilty of this type of fraud.

Bank Account Takeover

Getting access to your online bank details is very dangerous to your business finances; if not noticed on time, your funds can be easily drained. Bank account takeover fraud can be done both by internal and external perpetrators. You should beware of employees continuously asking for your sensitive business bank details or login details. More organized fraudsters can even use malware to try to gain access to your login information. It is safe for you not to log into your bank account using an unsecured network, and don't ever log in to your bank website without really verifying if it is the genuine one.

Directory Fraud

Another ploy to scam you into getting your business details and procedures is through directory frauds. You may get a call that your company's information needs to be updated on a popular online directory to reach more potential customers. Small businesses may easily fall for such fraud schemes since they want to get more customers.

Once payment is made, you will then discover that such a business directory is not real or you are not contacted by the real owners of such directories. Verify the business directory platforms first before engaging in any business.

Intellectual Property (IP) or Trade Secret Fraud

Your company's IP is perhaps the most valuable intangible asset of your business and is highly vulnerable to theft or leaks. Although IP is protected under patent, copyright, or trade secrets law, it can still be used against you when it ends up in the hands of competitors. Intellectual property fraud can occur in the form of underworld cyber actors breaching your system and stealing it to be sold to your competitors. You can also fall victim to the invention promotion scam.

Identity Theft

With emerging technologies, identity theft is becoming more common among small businesses, and this can cause a lot of reputation damage and loss of valuable resources when not discovered early enough. Identity theft happens when your personal information, such as your Social Security number, credit card information, bank account number, and other account information details, is used for malicious purposes or to steal your funds. The use of data mining is a common way to perpetuate this kind of fraud.

A potential warning sign is when you begin to notice unfamiliar account details on your payroll or credit report or when you get debits that you cannot trace or account for. It can become worse when the IRS notifies you of changes in your tax information. To mitigate this, always evaluate your financial records. Once you notice a red flag, proceed to change your login details, pins, and passwords. For severe cases, notify your financial institution to freeze or close your account to avoid further funds deductions. Furthermore, contact for more directives.

Stolen Tax Return Fraud

Stolen tax return fraud occurs when your Social Security number is stolen by someone else and used to receive your tax return. You will only discover this when you file the tax return and get rejected by the IRS stating that you are already on the list. To prevent tax fraud, experts recommend filing your taxes early. Additionally, avoid giving out your Social Security number carelessly.

Debit and Credit Card Fraud

This fraud happens when scammers get a hold of your credit or debit card details, such as card numbers, security numbers, expiration dates, and PINs, to carry out transactions that you do not authorize. You start noticing charges for transactions you don't recognize or you have used in a location you've not visited.

Your credit and debit card details should be confidential; report to your bank when you notice unauthorized transactions. A change of your bank card details may be necessary to stop further deductions.

Ponzi Scheme

Ponzi schemes are investment frauds that usually involve old investors getting paid with funds collected by new investors. The scheme owners keep part of the funds for themselves in the process. One of the easiest ways to detect a Ponzi scheme is by enticing you with investments that involve zero risks. You will also notice that there is no legitimate way of generating revenue with such schemes.

It would help if you avoided any investment that has secretive and complex pyramid strategies. You should also always do background checks to ensure that any investment you wish to engage in is duly registered with relevant authorities.


A sweepstake scam is a type of lottery scam that targets business owners to lure them into believing that they have won prizes or can be guided on winning foreign lotteries. Most sweepstake scams have one thing in common: for you to pay a required amount so that you can have access to the millions you have won. You can get unsolicited emails notifying you that you have won prizes for contests that you didn't even participate in.

Once you get such mail, it is best to ignore them if you didn't partake in any contest. Don't pay to collect any sweepstakes and report any suspicious activities to the Federal Trade Commission (FTC). Other common fraud types are financial statement fraud, office supplies fraud, false invoice fraud, and valuation fraud.

3 Ways to Protect Your Small Business From Fraudsters

As a small business owner, you are responsible for doing your utmost best to protect your investment against scammers. Some measures you can take include:

  • Educate yourself. Understanding how fraudulent activities impact your business will help you stay updated with the latest tricks con artists may employ to target your business.
  • Educate your staff on how best to protect sensitive company data like trade secrets, intellectual property, and account information, including account number, client information, and other sensitive information. Employees should also be made aware of the potential warning signs or red flags.
  • Integrate a fraud management system into your business to monitor real-time transactions across company users.

Stay on Top of Your Business Finances With Skynova

As fraudsters exploit technology to target businesses. Small businesses are faced with the challenges of protecting their investments. Financial security is highly prioritized in this regard. Skynova's accounting software is a great way to securely track your financial transactions, generate accurate financial statements, and execute other accounting processes. You can then focus on securing other aspects of your business.

Notice to the Reader

This content details popular fraud types small businesses may encounter and some preventive measures. The measures may not work in your specific situation. Seek an expert opinion to protect your business from fraud.