Small businesses often lack the time and resources to deter, monitor for and detect fraud. That makes it easy for employees who have the need and opportunity to steal without much fear of being caught.
It should come as no surprise, then, that fraud is a big small-business problem.
Fraud can often be detected, though...if you know what to look for.
Many common small-business fraud schemes leave "traces" in the business' financial records. Finding those traces is difficult; they must be plucked out of thousands of other, legitimate records.
Manually searching for those traces would require a huge investment of time and effort.
To find them, TraceTech turned to technology. TraceTech's proprietary, field-tested software knows what to look for and where to look for it.
The software pores through a business' financial records including bank statements, credit card statements, payroll reports, ledgers, registers, daily deposit reports, employee lists and vendor lists looking for the telltale clues that indicate a fraud in progress.
While not every fraud scheme leaves traces in these places, many common small-business schemes do. What follows are just a few examples.
Fraudulent Billing Schemes
Fraudulent Billing schemes are a very popular way of stealing a business' cash. In Fraudulent Billing schemes, the business pays invoices for goods or services that it never received, or paid inflated prices for goods or services that it did receive, or paid for an employee's personal expenses.
Fraudulent Billing schemes are very difficult to detect because the invoices "look" like legitimate invoices, sometimes from vendors that the business frequently does business with.
As an aside, many small business owners downplay their fraud risk because as policy they sign every check and do so only with proper documentation. Fraudulent billing schemes circumvent this control.
However, many types of Fraudulent Billing schemes leave "clues". Here are a few examples:
- one way an employee can steal money is to have the business send payments of bogus invoices directly to their home. How? If they have access to the business' approved vendor list, they can "create" bogus "legitimate" vendors, using their home address. After all, in a small business, who has the time to compare vendor addresses to employee addresses?
- TraceTech's software compares every vendor address to every employee address and reports when two addresses are identical or nearly-identical.
- fraudsters are usually "first-timers" and often make "rookie" judgment calls. Occasionally an employee who creates a bogus business will give the business a name that includes the employee's own initials, such as "DHR Consulting". Though lots of legitimate vendors include initials in their name (think "IBM" and "UPS"), few will have names whose initials match those of an employee.
- TraceTech's software reports every vendor whose name includes an employee's initials
- occasionally a fraudster will submit consecutively-numbered bogus invoices. Invoices from legitimate vendors are rarely consecutive.
- TraceTech's software reports every firm that has "issued" consecutively-numbered invoices to the business, or invoices with the same invoice number
Check Tampering Schemes
Check Tampering schemes are easy to pull off (thus their popularity) and relatively easy to detect - if you know where to look and have the time to do it.
In Check Tampering schemes the perpetrator forges or alters the business' checks or steals a check that the business issued to another party.
Many Check Tampering schemes leave traces that can be found in the data that TraceTech's software examines. Here are a few examples:
- in one of the most popular check-tampering schemes, the fraudster simply writes checks to themselves, and conceal the theft by entering the checks into the register as payments to legitimate vendors. For anyone looking at the ledger or the register, the payments look like normal vendor payments.
- TraceTech's software reports every discrepancy (payee and amount) between checks in bank statements and checks in check registers or ledgers. The software also reports checks that were cashed but were never entered into the register or the ledger.
- online banking is a fraudster's dream-come-true. If an employee has online access to one of the business' accounts, they can easily transfer funds out of the account into an account that they control. (This is another scheme that circumvents the "owner-signs-every-check control)
- TraceTech's software reports every discrepancy between transfers in bank statements and the ledger. The software also reports transfers that were never entered into the register or ledger.
Payroll Schemes
In Payroll schemes, the perpetrator makes bogus compensation claims.
The dollar loss to payroll schemes varies widely. A few extra "hours" here and there are difficult to detect. Some brazen schemes, however, result in the loss of much more money. Many of these schemes leave detectable traces. Here are a few examples:
- a payroll manager may put non-existent "employees" on the payroll and cash their paychecks. These ghost employees may have the same address as the perpetrator. Or their direct-deposit information may be the same as the perpetrator's.
- TraceTech's software reports all employees that have identical or near-identical addresses, and all employees that have the same direct-deposit information. In both cases the vast majority of these cases represent legitimate conditions (usually, the employees are related to each other). However, in small businesses, there are so few of these legitimate cases that odd pairings stand out.
- a payroll manager might "authorize" salary increases. for themselves
- TraceTech's software reports every unexpectedly large salary increase.
Continuous Improvement
These are just a few of the schemes that TraceTech's software can help to uncover. TraceTech currently runs about fifty different tests. We continually improve that software. Each enhancement adds more tests to the test suite, making each release better at detecting fraud than the previous version of the software.
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Fraud Monitoring and Detection Services
