CF Saskatchewan Blog

Protect Your Small Business From These 5 Common Fraud Schemes

  • August 22, 2017
  • Written by Community Futures Saskatchewan

According to the Canadian Federation of Independent Business (CFIB), one third of small businesses have experienced at least one fraud attempt within the past year. 20% of these companies have fallen victim to a fraudulent scheme, and only 8% of those organizations recovered their full financial loss afterward.

Below, we explain five common financial deceptions affecting Canadian small businesses today, as well as how to avoid them. Educate yourself to protect your company’s finances before it’s too late.

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  1. Cash skimming

One type of fraud that commonly affects cash sale businesses, revenue skimming occurs when employees receive cash in exchange for goods or services and then don’t register the transaction. Instead, they pocket the cash. For instance, if an employee at a small clothing store sells a shirt for $15 but doesn’t ring it up or provide a receipt to the buyer, there is no record of the transaction. They can walk away with $15.

How to Protect Yourself and Your Small Business:

Periodically double check your stock and compare it to sales records. In addition, rotate cash register duties among tenured employees so a single person never has constant control over cash.

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  1. Payroll fraud

The RCMP’s Commercial Crime Branch reports that fraud-related offenses in Canada siphon approximately $10 to $30 billion from business owners every year, according to nagel + associates’ report on payroll fraud. This often occurs because managers don’t carefully examine payroll documents or set up a system of checks and balances, instead relying upon trusted employees to abide by the honor system and/or complete payroll correctly every time.

How to Protect Yourself and Your Small Business:

Although you may trust your long-time employees, don’t automatically assume that they would never make mistakes or poor choices; research and case studies both show that tenured employees are just as likely to participate in payroll fraud as newer workers, especially if they have more autonomy, less oversight, and a greater familiarity with the weaknesses of your payroll system.

Implement a system that requires several people to double check and sign off on numbers every single payroll period, and periodically audit records to ensure that all employees, salaries, and overtime expenses are legitimate.

  1. Phishing traps

Not all crime occurs in-house. In fact, the CFIB reports that the most common type of fraud reported by small business owners involves email scams and phishing—duplicitous online attempts to obtain sensitive information via online communications. Usually this occurs in the form of a well-designed email that appears to be from an official source, such as a vendor or credit card company that your company works with, demanding that you fulfill an overdue payment or something similar.

In other cases, the email messages may contain links designed to implant viruses and/or malware on your company computers and eventually souse out information such as bank account information, credit card numbers, or email passwords. Holding data or computer access for ransom is also common.

How to Protect Yourself and Your Small Business:

Install hefty malware protection on all company devices including personal devices that double for business purposes. Train all employees to be suspicious of emails or phone calls demanding payment, and instruct them to forward the demand to management.

Always err on the side of caution: hover your cursor over links in emails to preview URLs before clicking and reach out to vendors or credit card companies directly to verify any charges before paying. Lastly, stay informed about the latest fraud schemes.

  1. Workers’ compensation scams

Workers’ compensation is an important part of protecting employees’ wellbeing, and in several industries, coverage is generally mandatory. However, sometimes employees try to take advantage of this system. They may pretend to be injured while on the job when the injury occurred during personal hours or will exaggerate a workplace injury to receive a larger settlement.

How to Protect Yourself and Your Small Business:

Keep your workers’ compensation coverage up-to-date and consult a risk management specialist or similarly trained professional about minimizing your company’s risks. Additionally, ensure that all employees are trained in workplace safety and provide all equipment necessary to ensure their wellbeing.

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  1. Wire fraud

According to the Canadian Anti-Fraud Centre, Canadian businesses are falling victim to the Business Executive Scam aka the Business Email Compromise, where it appears as though a business owner or executive requests an employee to make a wire transfer on their behalf. Usually this is because they are supposedly working off-site and need a bill paid immediately.

How to Protect Yourself and Your Small Business:

Learn more about wire fraud from the Canadian Anti-Fraud Centre. Then, tell all employees or third-party financial assistants (such as accountants, bookkeepers, or investors) to be on the lookout for these kinds of requests and make it clear that you will never ask them to complete large transfers on your behalf while absent.

With a little education and proactivity, you can protect your company’s finances.


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