How to Identify Signs of Fraud in Your Business


As a document destruction provider, we have a keen understanding of the importance of information protection for both physical and digital documents. It only takes three pieces of information – a name, address, and date of birth – to infiltrate most private accounts.

When you regularly handle the personal details of clients, customers, and employees, proper security measures become a matter of law, not just principle. The measures you put in place through company policy work to protect everyone, and if they’re not there (or aren’t designed as well or as thoroughly as they should be), it creates the opportunity for fraud.

As November 17th kicks off International Fraud Awareness Week, we thought we’d take a moment to address the nature of fraud, how it can impact your business, the warning signs that can alert you to it, and preventative measures to introduce to your company today.

What is Fraud?

You probably already have a general idea of what fraud means, but the technical definition of fraud is a criminal deception performed with the intention of achieving personal or financial gain at the expense of a victim.

On an individual level, fraud can take the form of identity theft, pyramid schemes, work-from-home scams, credit card fraud, and many more. However, fraud within a business looks a little different, and can take a keen eye to spot.

It doesn’t take much to create the opportunity to fraud. When an individual is in a situation where they are in a financial crisis, opportunity can present itself in a single document. Destruction of company trust, morale, and monetary stability inevitably follows.

Fraud’s Impact on Businesses and Employees

Unfortunately, according to the Association of Certified Fraud Examiners (ACFE), small businesses (i.e. those with less than 100 employees) lose almost twice as much to fraud as larger businesses. The main reason is a lack of internal controls such as formalized fraud training, regular management reviews, or active data monitoring.

Business fraud does have a few things in common regardless of the size of corporation it targets, but these similarities are only to be found in terms of how the business and employees suffer. Even if fraud is committed with the best interests of the company in mind (fudging the account books to make it look like the company is doing fine, for example), resources and time will be lost in the resulting investigation, and everything from salaries to internal morale and professional reputation will suffer.

Common Forms of Business Fraud

  • Asset Misappropriation – Where an employee misuses or redirects company assets for personal or financial gain. This can be as simple as stealing products or resources, or as carefully orchestrated as submitting inflated expense claims to the company for reimbursement.
  • Payroll Fraud – If an employee claims more time than they actually worked, or if a fake/old employee name is still set up to receive pay (which is then delivered to the account of the scammer). This is actually one of the most frequent types of fraud, as it happens to around 27% of companies.
  • Accounting Fraud – This is probably the type of fraud that comes most readily to mind when business fraud is brought up. Embezzlement is one of the most dramatic examples, but personal purchases, fake sales, and account skimming are all other variations.
  • Vendor Fraud – This typically involves overbilling a company or accepting a bribe from a vendor in exchange for monetary or personal advantage. An example could be an employee charging the vendor less than the company agreed in exchange for a free product.
  • Data Theft – This can be one of the hardest types of fraud to track, as it deals with information rather than physical products or services. Data theft occurs when someone within one company sells information, such as trade secrets, contact information, or confidential client details, to another party.

Warning Signs of Fraud

The ACFE has identified six consistent warning signs that appear in perpetrators of fraud, regardless of company position.

  • Are they living beyond their means?
  • Are they having financial difficulties?
  • Do they have an unusually close relationship with a vendor or customer?
  • Are they controlling or unwilling to share their duties?
  • Are they currently experiencing family issues or going through a divorce?
  • Do they get what they want through cleverly complicated or dishonest arrangements?

In 85% of fraud cases, at least one of these signs was present, and in 50% of cases, multiple signs appeared together.

You’ll also want to keep an eye on any financial inconsistencies within the accounting system or performance reports, as these could be a sign of a problem that needs to be investigated.

Preventing Fraud

It’s impossible to account for every scenario in which fraud could arise, but there are some basic preventative measures you can take to prevent fraud:

  • Background check all new hires.
  • Investigate and review all new vendors
  • Conduct random audits
  • Restrict information access
  • Introduce an anonymous system of reporting
  • Regulate and monitor the accounting system
  • Encourage company values of honesty and integrity
  • Protect company and customer information

An easy fix is to make sure that company information is never left unprotected or carelessly disposed. A document shredding service will make sure that every piece of paper is destroyed according to federal and state regulations, and will remove the remaining particles for recycling, further ensuring that the data can never be retrieved or stolen.

We offer a variety of document destruction services for businesses and residences, including drop-off shredding at our Glendale location. For more information on our shredding programs, call (602) 759-5103. You can also request a free quote online.