Fraud is a legal term used to describe a deliberate and willful act that results in harm to another person or business. In essence, fraud is any act involving deception, dishonesty, or misrepresentation resulting in a misappropriation of resources or financial loss.
Fraud has become increasingly common in recent years, especially with the rise of digital technologies like the internet, making it even easier to commit fraudulent activities without being detected. In fact, fraud losses totaled $2.9 billion in 2019 alone.
Signs of Fraud
A key to avoiding fraud is recognizing the warning signs. The most common signs of fraud include:
- Unusual payment requests or instructions
- Invoices that appear to be falsified or altered
- The recipient’s name and contact information does not match the invoice
- Unexpected requests for payment or documents
- Unfamiliar requests for payment or documents
- Unusual changes in payment terms or payment methods
Preventing Fraud
To prevent fraud, businesses should have stringent internal controls in place. These controls can include:
- Establishing clear policies and procedures for handling invoices and payments
- Implementing separation of duties when recording financial information
- Regularly monitoring accounts payable and receivable
- Verifying the authenticity of all documents prior to making payments
- Reconciling records with vendors and customers on a regular basis
- Investigating any suspicious activity promptly
Fraud is a serious crime with serious consequences. By learning how to recognize signs of fraud and implementing effective controls, businesses can reduce their risk of fraud and save significant amounts of money.