Different Types of Frauds in Banks, Auditing and Business

Fraudulent activities have always been a thorn in the side of commerce and consumers. It’s one of the main reasons for major financial losses by consumers and businesses. One of the best approaches to reduce it is staying on top of the latest information and identifying such criminal activity.

Criminals commit fraud to steal money from consumers or economic parties such as banks and businesses. Those are the two sectors of society where there’s plenty of money to be stolen. Thus, fraud is a common occurrence in banking, auditing, and business.

Avoid being a victim of fraud by educating yourself to learn how to determine fraudulent activity. Types of fraud in auditing? This article will help you do just that as it discusses the different types of frauds in banks, types of frauds in auditing, and types of frauds in business.

Different Types of Frauds in Banks, Auditing and Business

1. Types of Frauds in Banks

Fraudulent acts in banking are done in the real and online world. They come in the guise of the following:

• Phishing

Phishing is read as “fishing” because it literally means just that. Fraudsters aim to “fish” for consumers’ banking details so they can steal their money. This type of banking fraud usually happens online via email.

Fraudsters will send a realistic fake email claiming that your account has been compromised. The email will ask you to confirm your transactions’ authenticity and form it in a way that conveys urgency. The email has a link to a website spoofing one of a financial institution’s.

Once you’re redirected to the spoof website, it’ll ask you to fill up a field of your banking details. That’s how they gain access to your bank account by stealing your identity.

Banks have warnings about phishing scams as their way to consider the consumer. Contact your bank regarding this matter, so you’ll know if someone is trying to scam you.

• Skimming

Fraudsters perpetuate skimming through the use of a skimmer. A skimmer is a copying device that captures payment card information. Once your card information has been copied through the device, it’ll be transmitted to a designated computer for fraudulent purposes.

To prevent that from happening, always watch every physical transaction where you use your credit or debit cards. Make sure they’re not swiped or inserted into any foreign device, and shield the ATM keypad when you’re withdrawing money.

• Cheque fraud

Cheque fraud involves the misrepresentation of a negotiable item such as personal and business cheques. There are two common types of cheque fraud: altered and counterfeit.

An altered cheque is an original cheque tainted with unauthorized changes such as changing the payee’s name or the amount. A counterfeit cheque is a copied form of an original cheque to make it look legit. Avoid falling victim to cheque fraud by requesting a new cheque whenever you notice apparent damages on the one given to you as payment.

2. Types of Frauds in Auditing

The purpose of auditing is to check the financial reliability of any organization. Fraud is often uncovered during this process that can either incriminate the organization or discover that they’ve fallen victim to their malpractice or lack of responsibility. Here are the three distinct types of fraud found through auditing:

• Manipulation of accounts

There are two reasons why accounts are manipulated: one is to show higher profits, and the other is to show the opposite. Top management of various organizations do this in order to mislead banks, shareholders, and the authorities. In return, they’ll gain different kinds of advantages depending on their purpose.

Account manipulations that aim to show higher profits than the actual can improve an organization’s existing credit from financial institutions and show that their worthy of credit from their suppliers. It’s also used to gain commissions, where commissions are calculated based on earned profits. Also, it’s used to increase the market price of shares and their selling price.

Manipulation of accounts is done through a method called window dressing. It could be in the form of the following:

● Overvaluation of closing stock

● Undervaluation of liabilities or overvaluation of assets

● Deferring purchases and expenses to the next year

● Charging revenue expenses as capital expenditure

• Misappropriation of goods

This is a problematic fraudulent activity to detect, particularly if the company or organization isn’t that vigilant with bookkeeping. Misappropriation of goods can either be done through employees stealing goods or aiding in the theft thereof or by issuing false credit notes to customers on account of returning goods.

• Misappropriation of cash

This type of fraud can be executed easily in large businesses. It’s known as embezzlement in legal terms and is typically perpetrated by showing false or excess payments in cashbooks or theft of cash receipts and petty cash. 

A business needs stricter internal control systems to prevent embezzlement. A proper structure that can detect or prevent misappropriation of cash is one where another automatically checks the work of a person. 

3. Types of Frauds in Business

Here are some of the typical fraudulent schemes that happen in business that you should be aware of:

• Payroll fraud

This fraud scheme can manifest in various ways and is twice as common in small businesses, contrary to what one would think. It’s usually perpetrated by employees who want to gain more money on their payroll.

Employees could manipulate their working hours or ask for advances without paying them back. They could also connive with a co-worker to clock in for them even during their absences. Anything that any horrible employee can do to increase their salary unfairly is considered payroll fraud.

According to studies, payroll fraud is twice as prevalent in small businesses because they don’t have effective anti-fraud measures. Small business owners should address this by creating and implementing an anti-fraud system that can detect payroll fraud instances, which includes appropriate punishment.

• Money fraud

Money fraud occurs when you receive fake bills for real item purchases. Sometimes, the customer isn’t even aware that they’re paying counterfeit bills. This is why banks and various financial institutions disseminate vital information to help detect fake money.

Learn methods on how to tell fake money from genuine bills. You may place your business or yourself as a consumer in a precarious situation if you’re not careful.

• Return fraud

Return fraud can happen in two ways: your product can be stolen and returned to you with some alterations, or a customer buys one, uses it, then returns it without any damage or causing the customer inconvenience or injury.

This is where the importance of receipts and warranties comes into play. To avoid return fraud, always require receipts and have a reliable warranty policy.

Final thoughts

Fraudulent schemes damage businesses and consumers in more ways than one. It is something that you have to be careful about. Always keep an eye out for suspicious practices and take good care of pertinent information and property to prevent them.

Author bio: Deinah Storm used to work in the corporate world as a marketing affiliate. She quit her job to pursue her passion for writing, but to this day, Deinah is committed to educating consumers about the different marketing scams and how to avoid them.