Small Business Fraud

There are myriad frauds that can be perpetrated against businesses and which business owners have to remain vigilant against in today’s world. The average company can expect to lose six percent of its revenue to fraud. Our Chicago small business fraud attorneys recognize that they face threats from both outside and within the organization.

One especially damaging source of fraud can be a company’s own employees, often long-time employees placed in positions of trust. These employees often start out as well-intentioned and honest, but a personal financial crisis drives them to desperate acts which include embezzling or skimming company funds for personal use. They often have ready access to funds because of their position, lack of oversight, and time served within the organization—a bookkeeper or accountant, for instance. It can often be years before an employer discovers or suspects anything out of the ordinary, after great and even irreparable damage has been done.

Fraud experts have identified an employee “fraud triangle” beginning with: 1) financial stress on the employee, 2) opportunity, or access to money at work, and 3) rationalization (e.g., feeling overworked and underpaid; feeling the employee is “due” more because of the perception of inadequate compensation for years of faithful service; and believing the employer can “afford” it and won’t even notice because it already has so much revenue).

Based in the Chicago area, our small business fraud attorneys believe that businesses can help guard against this type of fraud by having in place a system of checks and balances, or segregation of duties, where one individual is never left with exclusive control of company funds or financial information. Business owners should carefully review and audit accounts and have a written anti-fraud policy or “code of ethics” that clarifies consequences for fraud.

Threats can also come from outside the organization. Small businesses are sometimes the victims of fraudulent invoicing, where another person or business will send a fake invoice for products or services never purchased, and the defrauded business often will pay it without verifying. Sometimes they work in cahoots with a company insider, but not always. Contractors and vendors can defraud businesses by overcharging, billing for work not done, failing to perform work already paid for, and deliberately providing substandard products or service. Our small business fraud lawyers can help Chicago clients try to hold contractors and vendors accountable when this happens.

Of course, businesses can also be defrauded by their customers through payment with bad checks and stolen credit cards, fraudulent product “returns,” and phony personal injury claims.

Cyber-attacks such as hacking are a growing threat to businesses and their clients, underscoring the need to stay one step ahead of cyber criminals by keeping IT infrastructure safe through up-to-date security tools and backup systems. Businesses can be the victims of identity theft the same way individuals are. Nefarious persons or groups obtain sensitive information and open fraudulent accounts in the company’s name. If you are concerned that this has happened to you, contact our Chicago small business fraud lawyers to help you investigate the situation further.

Small businesses are especially vulnerable to fraud. According to the Association of Certified Fraud Examiners, companies with fewer than 100 employees represent one third of all fraud cases. They suffer an average loss of nearly $150,000 per occurrence. Moreover, federal protections for consumer victims of fraud usually do not extend to business accounts, creating great risk for companies that are not insured against fraud.

• “How to Protect Your Business Against Fraud,” Inc.com
• “Top 5 Small Business Fraud Threats”, Vantiv.com
• “Small Business Administration”
• “How To Protect Your Small Business from Fraud,” Investopedia
• “Don't get sued: 5 tips to protect your small business”
• "Big Concern for Small Businesses: Business Fraud Overview," Jux.law
• “Small Business Fraud and the Trusted Employee,” ACFE.com