Financial fraud is a serious concern for business owners on Long Island. Whether you own a small company or a large corporation, these types of illegal schemes can lead to significant financial loss, operational disruptions, and reputational damage. It’s critical to understand the most common types of financial fraud that can occur to be in the best position to protect your assets — and maintain a strong market position.
Here are five common types of financial fraud in Long Island businesses owners should be aware of:
Payroll Fraud
One of the most common types of financial fraud in Long Island businesses is payroll fraud. This occurs when an employee manipulates the company’s payroll system for their own financial gain and then conceals their wrongdoing. Payroll fraud can take many different forms — it may involve an employee falsifying wages by claiming hours not worked, filing inflated reimbursement claims, or altering their pay rate. It’s vital to implement adequate oversight procedures to combat these types of threats.
Cyber Fraud
Due to the rise in digital transactions, instances of cyber fraud have become increasingly common. A form of financial fraud, there are various types of cyber fraud business owners should be familiar with, including the following:
- Phishing attacks — Phishing attacks can lead to substantial financial loss as a result of fraudulent wire transfers, unauthorized transactions, and ransomware infections. Fraudsters may attempt to trick victims into revealing personal information and proprietary data, providing customer credit card numbers, or downloading malware. Not only can phishing scams erode customer trust and investor confidence, but they can also cause businesses to face potential fines for failing to protect customer data, as well as incur compliance costs related to the breach.
- Pharming — Pharming is a type of cyber-attack that redirects users to a counterfeit website which collects sensitive information from the computer system. Fraudsters use a variety of techniques to lead users to fraudulent websites resembling online banking portals, retail shopping platforms, and social media sites.
- Business email compromise (BEC) — BEC is a form of phishing involving emails that impersonate legitimate individuals such as business partners, vendors, attorneys, and others to create a sense of urgency by requesting immediate payments. For example, the fraudster might send an email claiming that a bank account is undergoing an audit and require a different method of payment. Business owners should implement email authentication protocols and train employees on how to identify these types of emails.
- Malware — Malware is a type of malicious software that is designed to gain unauthorized access to a computer system, steal financial information, or disrupt operations. It can come in various forms, including spyware, ransomware, adware, viruses, worms, and Trojan horses.
It’s crucial for business owners to ensure strong cybersecurity measures are in place and employees have proper training to identify cyberfraud risks.
Vendor Billing Fraud
Vendor billing fraud is a common type of financial fraud on Long Island that business owners need to protect themselves against. This form of wrongdoing can involve a vendor deceiving a company into paying for goods or services that were not delivered, inflating invoices, or impersonating a legitimate supplier. Businesses should implement stringent vendor verification processes to mitigate these risks.
Financial Statement Fraud
Financial statement fraud is a form of wrongdoing that is usually perpetrated by senior management. It involves artificially inflating the company’s revenue for personal gain by manipulating financial statements. Fraudsters might attempt to make the company’s stock more attractive to potential investors, leading to an increase in stock prices and a boost in their compensation. In addition to reputational damage and potential loss of business opportunities, financial fraud can also result in criminal charges and penalties imposed by the Securities and Exchange Commission.
Embezzlement
Embezzlement is among the most common types of financial fraud in Long Island businesses. It occurs when an employee fraudulently misappropriates money or property for personal use. Embezzlement can happen at both large and small companies, and may involve various acts, such as the following:
- Taking cash meant to be deposited into bank accounts
- Forging checks
- Skimming cash from sales
- Altering the company’s payroll
- Misusing a business credit card
- Receiving kickbacks from vendors
- Making unauthorized personal purchases
- Falsely categorizing personal expenses as business-related
To combat embezzlement, business owners should implement strong internal controls, including restricting access to assets, conducting regular audits, and segregating duties.
Contact an Experienced Long Island Business Attorney
If you are a business owner, it’s essential to take the necessary measures to safeguard your company and its bottom line. A knowledgeable business attorney can best advise you regarding the steps you can take to avoid instances of financial fraud. At Barnes & Barnes, P.C., we handle a broad scope of business matters, including those involving financial fraud. Contact us at (516) 673-0674 to schedule a consultation.
