Maintaining a high level of oversight is critical to fraud prevention for small businesses in Canada. Here are 6 types of fraud and how to best stop them.

Financial fraud is hopefully not going to happen to your business but without proper protocols, you could fall victim to a scam. In order to protect your assets, you need to stay up to date on the five basic fraud schemes and the best ways to combat them.

Why is fraud a problem for small businesses?

Fraud is a problem everywhere, but small businesses are particularly vulnerable. Small businesses usually don’t have the infrastructure to implement internal checks within the accounting systems. As well, those performing bookkeeping and accounting duties may not have the experience to spot trouble when it occurs.

Types of fraud

1. Workman’s Compensation fraud

This type of fraud occurs when an employee makes false or exaggerated claims about a workplace injury. In some cases, the employee will get hurt on their off hours but report that they were hurt at work in order to make a claim.

To help avoid this fraud, be sure your work environment is as safe as possible and use the necessary safety equipment to complete all tasks.

2. Cheque fraud

Cheque tampering occurs when an employee uses a company cheque and changes the payee to their own name or a fake name or shell company. Another way to tamper with cheques would be when an employee writes a cheque to a fake payee and then collaborates with other people or businesses to get the money.

To prevent cheque fraud, have more than one person check the company’s finances and have the business owner sign each cheque personally.

3. Revenue skimming

Revenue skimming most commonly happens when your business involves cash, like a at a retail store. When a customer pays cash and doesn’t take a receipt, the skimmer pockets the cash.

To keep an eye on revenue skimming, pay attention to your inventory. Shrinking inventory can indicate that workers are skimming cash. If this is happening, closer supervision may be required.

4. Fraudulent invoicing

This type of fraud involves a person or business sending an invoice – and getting paid for – goods or services that were never ordered or purchased. Sometimes these invoices get paid because the process of paying invoices doesn’t have any oversight.

To prevent this from happening, ensure a protocol is in place that checks every invoice and matches it up to goods or services purchased.

5. Payroll fraud

Payroll fraud can happen in a few ways. The most basic example is when an employee who is paid hourly claims they worked for more hours than they actually did. Another type is when a salaried employee who has access to payroll records and changes their salary. Yet another kind is when an employee with commissions reports false sales or orders.

To prevent payroll fraud, a higher degree of employee oversight is the best solution. Reviewing and spot checking timesheets, comparing employees with the same or similar jobs on a regular basis can give employers insight as to when something is off.

Other ways to avoid fraud

There are certain steps you can take to help minimize your risk of falling victim to fraud. These include:

  • Hire the right employees by conducting background checks and thoroughly checking references.
  • Maintain strong internal controls by having a set of checks and balances in place. Don’t deviate from your process or make any exceptions.
  • Monitor situations that involve cash or valuables by having lockable storage and security cameras.
  • Conduct surprise audits so that complicit employees won’t have time to change records or cover their tracks.
  • Other protocols can include, keeping banking records in locked cabinets, always use a secure password for computer files and only allow access to a few trusted employees.
  • Create a fraud policy that’s straight forward and easy to understand. Review the policy when onboarding new employees and let them know what to do when they suspect fraud has been committed.

Another top fraud prevention tactic for small businesses in Canada is to keep immaculate books and have a great accountant in your corner! Contact us if you’re looking for a partner for your accounting and bookkeeping needs.

E&E Professional Accountants has years of experience in assisting businesses with their accounting needs. We are founded and managed by an experienced corporate auditor and a former CRA tax auditor. Feel free to contact us for assistance with all your accounting and bookkeeping needs.