How to Fight Small Business Fraud

By Joe Taylor Jr. | Posted May 10, 2013

When the economy slows down, criminals get clever. Instead of relying on theft and thuggery, scammers have developed some insidious, new techniques to steal money from your small business. Dr. Martin Bressler, currently a professor of marketing and management at Southeastern Oklahoma State University, estimates that the typical company owner loses $190,000 for each instance of fraud uncovered. Academics and law enforcement officials recommend four steps that you can take right now to prevent your business from falling victim to savvy scam artists.

4 Ways to Reduce Small Business Fraud

1. Validate incoming checks against invoices and price lists

One of today's most common small business scams involves front line workers who process inbound cashier's checks or business checks. The checks look real, often passing initial phone or online verification. However, the amounts on these checks don't match up to the customer's order or balance.

A sheepish-sounding customer may call or email, asking for a refund of the difference on his or her mistaken payment. That, according to the Office of the Comptroller of the Currency, often signals a potential scam. Because banks can take weeks to invalidate a fraudulent check, a criminal can get away with your cash and your goods, leaving you with a hole in your bank account.

2. Establish dedicated bank accounts for wire transfers

If your small business sometimes accepts wire transfer payments from customers, a simple policy change can help keep your funds from disappearing. With the right information, a fraudster can request outgoing transfers from your account, or simply forge checks with your company's information.


Ask your business banker to establish a free checking account dedicated solely to wire transfers. That way, you can distribute an account number and routing information to customers, knowing that criminals won't be able to drain your account with unauthorized ACH transactions.

3. Avoid business funding from unfamiliar sources

A recent variation on a phishing scam involves fake business loan and entrepreneur funding websites. Like legitimate credit applications, these sites ask for personal references and account information. According to the Rhode Island Attorney General's Office, that's everything a criminal needs to access your company's bank accounts. Even worse, some businesses have discovered fraudulent credit card processing accounts set up in their company names, used to process payments for criminal rings.

4. Confirm your bills before you send payment

According to the Federal Trade Commission, scammers trick employees into authorizing purchases, then threatening lawsuits or using harassing phone calls to coerce payments. Tiny print on the bottom or side of a survey or a directory listing request doesn't constitute an order, either. The FTC says that debt collectors can't enforce contracts made without the consent of an authorized company official.

In a paper published in the Journal of Management and Marketing Research, Dr. Bressler warned that as few as 1 in 5 companies take the time to perform unscheduled audits of their financial activities. Bressler found evidence that simple preventative measures like these usually cost just 1/25 as much as dealing with the effects of fraud after it happens.

Joe Taylor Jr. has covered personal finance and business for more than two decades. His work has been featured on NPR, CNBC, Financial Times Television, Fox Business, and ABC News. He recently completed a personal finance book entitled The Rogue Guide to Credit Cards; (Rogue Guide Books, 2012).

Do you have a comment or question about this article or other small business topics in general? Speak out in the SmallBusinessComputing.com Forums. Join the discussion today!

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