Small businesses should be alert to potential fraud charges. The lack of extensive security resources and advanced fraud prevention systems that larger companies use can leave them susceptible to accusations of fraud.
If you are running a small business, it’s possible to take steps to protect it from the risk of facing fraud charges. Being adequately informed is integral to doing that. Below are three fraud charges to know about:
Embezzlement
In small businesses, one or only a few employees often handle multiple financial tasks, including invoicing, payments and bank reconciliation. Such a lack of segregation of duties can increase the chances of an employee stealing funds and hiding their actions for a long time.
Lacking internal processes can even increase the likelihood of embezzlement. A company that has only a few employees handling financial tasks can manage to minimize the risks of fraud if it has formal and reliable auditing procedures.
Wire fraud
The use of electronic communications, such as email, phone calls, text messages or the internet, to intentionally defraud a person or business of money or property (wire fraud) is a federal crime. Unfortunately, it often happens in small businesses.
Fraudsters frequently target small businesses, as they know these companies lack strong internal controls. For instance, fraudsters heavily rely on the lack of segregation of duties. When a company has given one person control over multiple financial tasks, it can be easier for fraudsters to trick the employee into transferring funds or turn them into a willing or unwitting accomplice.
Tax evasion
Some small businesses make mistakes when filing their taxes, which could potentially lead to accusations of tax evasion. Lack of professional guidance can lead to underreporting income, misclassifying expenses, skipping payroll taxes and misclassifying employees.
A significant percentage of small businesses deal with fraud charges every year. It’s crucial to understand how to recognize and mitigate potential legal risks.