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ARIZONA’S TRUSTED BUSINESS ATTORNEYS, WITH EXPERIENCE THAT SPANS OVER TWO DECADES

As a motivated business owner, what would you say you prioritize daily? Talent retention and consistent growth? What about a good reputation and carefully protected assets?

Across all industries, fraudulent activity has numerous subtle warning signs that you might miss. The information below covers the six main types of fraud in business settings as follows:

1. Payroll fraud and Employee-related Theft
2. Tax fraud
3. Internet fraud
4. False advertising
5. False documentation
6. Laundering and Racketeering

Recognizing a potentially fraudulent scheme or suspicious activity requires some insight into the type of fraud itself, and this goes beyond professional settings.

Scammers may target a vulnerable family member via social media platforms or job-seeking sites, leading to identity theft and credit card fraud. Business fraud also includes entering into agreements on false premises, withholding the true nature of a product or service, or using people’s information to commit financial fraud. When you recognize the fraud schemes, you can confidently maintain a successful business.

Arizona’s experienced business litigation attorney at Anthony Law Group shares more below.

#1 Payroll Fraud and Employee Theft

Could employees manipulate your company’s payroll system to collect extra money or start issuing unauthorized bonuses without earning them?

Common ways people commit payroll fraud would be the following:

• Seemingly trustworthy employees wire transfer more money than they have earned into a personal bank account.
• An unscrupulous team member manipulates their time card to up their pay or swipes the company card for personal purchases.
• A “fake employee” or “ghost employee” never shows up for their shift nor provides meaningful evidence of productivity, yet they still earn checks.

Unlike exposed sensitive information, typical employee fraud often flies under the radar since it happens from within your company hidden from view.

#2 Tax Fraud

Tax fraud occurs when a person or business misinforms the Internal Revenue Service or state revenue department in a bid to secure higher annual returns. As one of the more common types of fraud in business, it’s more subtle than tax evasion and might take the form of:

• Not reporting the entire year’s profits or income
• Overstating tax deductions
• Adding nonexistent dependents to claims

Your business can avoid tax return fraud by reporting precise tax information, keeping accurate records, and hiring a qualified accountant.

#3 Internet Fraud

E-commerce is a double-edged sword if you’re trying to prevent opportunities for people to commit fraud. You can simultaneously access diverse business opportunities and compromise sensitive information without precautions.

Well-known business fraud within electronic or virtual ecosystems include the following:

• Hardware or infrastructural technology tampering: Your internet connections, computers, and other assets facilitate transactions between customers and employees. Could a savvy staff member with a chip on their shoulder alter the infrastructure?
• Debt elimination scams: A fraudulent party may claim to resolve credit card or business debt but lack the designated financial institution’s legal backing. They can then access and take advantage of personal or financial information.
• False income opportunities: Some scammers charade as legitimate businesses or qualified professionals to convince vulnerable people to pool hard-earned resources toward employment opportunities or investments. If they send money or data, the criminal drains their bank accounts.
• E-commerce fraud: Unlike mysteriously missing inventory from a warehouse, some fraudsters steal money by selling nonexistent products on e-commerce platforms. The purchaser never receives the shipment.
• Identity theft: Basic identity theft is a ubiquitous financial fraud variety. Cybercriminals illegally collect and use people’s financial records to access financial accounts or use personally identifiable information. For example, they’ll facilitate unauthorized purchases with a bank account number or open new credit lines with a credit report.

Cybercriminals are creative, and their methods transcend phishing, viral email attachments, and credit card fraud.

#4 False Advertising

Less obvious types of fraud in business might include misrepresentations.

For example, when a customer purchases a product or service, they rightfully expect it to live up to the marketing materials that first attracted them. If the product consistently fails to deliver, it is falsely advertised.

Arizona state law labels false advertisement as a misdemeanor.

#5 False Documentation

After parties agree to the terms of a business contract, everyone should reasonably expect those terms to hold. Counterfeit documents and forgery are well-known examples of false documentation that can derail your operation’s progress.

• Forgery: The other party forges a contract, adds your signature, or alters the terms without your knowledge or consent.
• Counterfeits: Fraudsters print and use unauthorized copies of official documents, like certificates, diplomas, or cash.

#6 Laundering and Racketeering

One final type of business-related fraud would be money laundering and racketeering operations, which generate profits from illegal sources.

A business engaged in money laundering veils illegal income sources by highlighting a legitimate one or obscuring where the real money came from.

Racketeering sells illicit substances or prohibited services for gain.

Financial Crime and Business Fraud Prevention 101: Summation

You already know that corporate fraud, asset misappropriation, and other illegal schemes have warning signs. Consider the prevention tips below:

• Check the Federal Trade Commission website. This source provides updated information about new schemes. A legitimate financial institution registers with them.
• Offers that sound too good to be true usually are. Schemes like high-yield investment fraud advertise substantial returns for little effort or resources. If you don’t protect your stakeholders, criminals will procure their credit card statements or wire transfers to commit identity theft, rob accounts, and make illegal transactions.
• Hire carefully. You can avoid employee-related theft or misrepresentation with thorough background checks and hard copies of degrees, certificates, or endorsements to confirm credentials.
• Retain paperwork. Keep copies of tax returns, personal and company credit card information, and banking details under lock and key. When you restrict access to such details, you can more easily identify internal financial fraud.

If you’re concerned about any one of the above-mentioned types of fraud in business, you’ll want to make every effort to protect yourself with legal counsel. In Scottsdale, Arizona, Anthony Law Group could guide you through litigation against advance fee fraud, financial statement fraud, asset misappropriation, and even partnership disputes. Learn more or schedule a consultation by calling 602-362-2396.