Business Fraud 101: Warning Signs Every Business Owner Should Know

What is business fraud?

Common types of business fraud

Business fraud can take many forms, and tactics continue to evolve as more business activity moves online. Understanding the most common types of business fraud can help you recognize warning signs earlier and respond more effectively.

Cyberfraud, phishing scams and ransomware attacks

Cyberfraud is one of the fastest-growing fraud risks for businesses. Common schemes include phishing emails, fake tech support messages, ransomware attacks and fraudulent links designed to steal login credentials or install malicious software.

A phishing scam will often appear to be from trusted sources such as vendors, financial institutions or other trusted internal or external counterparts. They may prompt you or your employees to click a link, download an attachment or provide other sensitive information. Sometimes information is collected through fraudulent login screens to familiar internal applications, like a company’s VPN platform, prompting employees to enter confidential company login information.

Once security is compromised, attacks like ransomware can lock you out of critical systems until you meet a payment demand, disrupting operations and putting business data at risk.

Employee fraud

Employee fraud occurs when someone inside the business misuses their access or authority for personal gain. Typical cases may include stealing cash, manipulating payroll, submitting false expense reports or altering other financial records.

One of the biggest reasons employee fraud takes place is a lack of oversight, especially in smaller organizations where one person may handle multiple financial responsibilities. This can make it difficult to detect until it’s too late.

Payment and wire fraud

Payment scams and wire fraud schemes typically involve a combination of impersonation and urgency. Fraudsters may pose as vendors, executives or other familiar service providers. They’ll request payment changes or immediate wire transfers for “outstanding” or “missed” expenses.

These scams often rely on creating an email that appears to be from a trusted source (email spoofing) or by using compromised accounts. They might even include fake invoices or unusual payment instructions. Remember—pressure to act quickly or a sense of extreme urgency is a common red flag in scams.

Identity theft

Some criminals use your business’s information to open accounts, apply for credit or file fraudulent documents. This type of fraud can have long-lasting impacts and may take time to uncover, especially if unauthorized activity initially appears legitimate.

Spotting business fraud early

Spotting business fraud early can help limit financial losses and reduce overall disruptions. Keep an eye out for warning signs like unexplained financial discrepancies, sudden changes in account balances or transactions that don’t match your records. Any urgent or unusual payment requests that bypass normal approval processes are also a concern.

These can also be considered as cyberfraud red flags:

• Missing/inconsistent documentation, duplicate invoices, altered receipts or vague transaction descriptions.
• Behavioral changes among employees, such as avoiding oversight or reluctance to take time off, can signal internal fraud risks.
• Unfamiliar financial or technological events, like evidence of new devices accessing systems or repeated login alerts.

Best steps to reduce fraud risk

Reducing fraud risk starts with strong fundamentals and consistent oversight.

Strengthen internal controls: Separating financial responsibilities helps prevent fraud by preventing any individual from having too much control. For example, ideally you should assign different individuals for approvals, payments and reconciliations.

Educate employees: Training employees to recognize phishing scams, suspicious emails and social engineering tactics is one of the most effective fraud prevention tools. Awareness helps reduce human error and allows employees to better spot fraudulent activity or attempts.

Use strong security tools: Multi-factor authentication, strong passwords and secure payment systems, alongside other relevant security tools, can add vital layers of protection against cybercrime.

Monitor accounts regularly: Frequent reviews of bank accounts, credit card statements and transaction alerts will allow you to better spot unusual activity sooner and respond quickly.

Verify before you pay: Always confirm payment changes or urgent requests through a second channel, such as a phone call to a known contact, before releasing funds. Establishing internal processes for paying vendors and external sources can be another important deterrent to phishing scams and other types of fraud.

How small businesses can combat fraud

Even with strong prevention measures, fraud can still happen. If you suspect small business fraud, act quickly:

• Document the activity.
• Contact your financial institution.
• Report the incident to appropriate authorities such as the Federal Trade Commission or the FBI’s Internet Crime Complaint Center.

Staying informed about evolving fraud risks and having a response plan in place can help your business recover faster and reduce long-term impact. Ongoing education and trusted financial support are important parts of a strong fraud defense strategy.

Learn more

To learn more about protecting your business from fraud, explore Associated Bank’s security resources and fraud prevention articles.

If you think you’re experiencing fraudulent activity, have doubts whether an Associated Bank communication is genuine or need further assistance with your account, contact us here.