Businesses of any kind face the risks of being exposed to fraud and the challenges of detecting and preventing it. Fraud detection involves risk management systems and compliance processes that help monitor business operations. Fraud prevention, on the other hand, refers to implementing a strategy to reduce exposure to fraudulent behaviour.

Is fraud prevention on your agenda? If it already is, you are on the right path – it’s not an easy one, we know. If you have not considered yet what actions to take to protect your business, do not worry – it’s never too late to start.

In this article, we zoom in on the most common types of business fraud and suggest practical ways to protect your company. Maybe you are already doing some of these things or will find inspiration on how to take your efforts to the next level.

What is fraud?
What are the most common types of fraud?
1. Document falsification
2. Information misuse
3. Identity theft
4. Asset misappropriation
5. Money laundering
What is the true cost of fraud for businesses?
3 ways to reduce your exposure to fraud
How can Penneo help you reduce the risk of business fraud?


What is fraud?

Let us start by defining the enemy we fight against. Fraud can take many different forms which we face in both our personal and professional lives. And the consequences can be equally damaging.

Fraud or fraudulent behavior is commonly defined as the act of deceiving a person or organization to gain personal or financial advantage. Such illegal actions often appear as legitimate practices which makes it challenging to identify.

We often hear about scams where impostors cheat their victims on the phone, on the Internet, and even in person to extract money or personal information. In the business world, fraud can take the form of asset misappropriation, misuse of sensitive data, or falsifying financial records. It can come from external as well as internal stakeholders and can have a significant impact on the performance and growth of your business.

However, the financial losses are only some of the reasons why fraud is expensive for businesses and why its prevention is an important item to have on your agenda.

To better understand the impact that fraud can have on your business, we’re going to look at the most common types of business fraud and the costs involved.


What are the most common types of fraud in business?

Business fraud is considered a white-collar crime – a non-violent illegal action to obtain a financial advantage or benefit.

Common types of business fraud include document falsification, information misuse, identity theft, asset misappropriation, and money laundering.

In contrast to scams we see in our personal life, fraud in companies is often characterized by high complexity and impact as it can involve collusion, which significantly enlarges the magnitude of the unlawful actions.

Below we list common types of business fraud to look out for.

Types of business fraud

1. Document falsification

Document falsification refers to omitting or manipulating information so it benefits a particular individual or group of individuals. Examples include the company’s financial records, tax and insurance documents, invoices, and expense reimbursements among other things.


2. Information misuse

Unauthorized access to sensitive information raises serious concerns about the organization’s data protection and security and increases the risk of information abuse. Some examples include insider trading, leak of personal identification information, important documents, business secrets, and patents.


3. Identity theft

One of the most common forms of fraud is identity theft where a person uses another person’s personal information without permission. In business, identity theft happens when a person steals business identity information that enables them to act on behalf of the company. In this way, the imposter can get access to funds, customer and employee data, trade secrets, and other sensitive business information to use for personal benefit.


4. Asset misappropriation

Asset misappropriation happens when employees use company assets – cash or non-cash – not for their intended purpose, but for personal benefit. It is considered one of the most common types of fraud businesses meet and comparably easy to spot. The embezzlement can be extended to client assets which potentially exposes the business to higher costs associated with a damaged reputation, lost business relationships, and economic losses.


5. Money laundering

Businesses get penalized not only for the act of laundering money but also for not complying with anti-money laundering (AML) regulations – for example, failing to implement internal procedures for client identification and risk assessment. Financial institutions often fall on the radar of AML regulators, as well firms operating within the legal, audit, accounting, money transfer, money exchange, payment, gambling, real estate, investment, and insurance industries – all of which are considered high-risk industries.

Some types of business fraud are more common than others. It is important, however, that you consider the full spectrum when designing your risk assessment procedures and control mechanism. Why is that? Because the cost of not doing so can simply be too high to pay.


What is the true cost of fraud for businesses?

Often when thinking about the cost of fraud what comes first to mind is the financial losses. Besides the economic aspect, we are going to look at two other consequences of business fraud which can significantly increase the overall cost a business can encounter – these are damaged business reputation and lost opportunities.

A 2020 study estimates the financial cost of fraud to be 42 bn USD – an exceedingly high number, no doubt. However, when exposed to fraudulent or corruption schemes, the business reputation also suffers. To restore the good and trusted name of your brand you may find yourself heavily investing in crisis management, PR, and branding activities along with implementing risk management systems to control your exposure to fraudulent behavior.

When the business reputation is hurt, the trust is undermined. This can lead to customers and investors withdrawing from current business interactions as well as new business opportunities vanishing from the horizon. The overall impact on the business can be brutal and the cost for involvement in fraudulent schemes is very high.


3 ways to reduce your exposure to fraud


Fraud prevention


1. Be mindful and responsible about the ways you collect and share sensitive information

In a world where data security is a major trust pillar, you should invest in infrastructure and processes that manifest your responsibility towards your customers’ information. For example, investing in digital transaction management solutions can help your business collect and store information securely, while also reducing the time spent on manual work. When automating manual business processes, you reduce the chance of error, but also the risk of fraud. Fewer people have access to sensitive information and there is strict control over who sees and accesses different types of data.

For example, you can collect sensitive information using secure web forms which ensure that your data is safe through encryption. You can also add an extra layer of security by requesting identity verification. Using eID authentication ensures that the person on the other side is the one they claim to be. In addition to this, the processes can be automated – no more manual data collection, verification, and storage. In this way, you save your customers and yourself valuable time.


2. Know the person you are working with

Industries exposed to high risk of money laundering are required by law to implement know-your-customer (KYC) processes. In other words, to retrieve and validate information about their customers at the beginning of the collaboration and on an ongoing basis. Performing a risk assessment is necessary to minimize the risk of fraud, involvement in anti-money laundering (AML) schemes, and to stay compliant.

Performing a background check to know the identity of the people you collaborate with can reduce your exposure to fraud, even if your business is not regulated by law. Establishing trustful interactions from the beginning is a solid start for each relationship – a successful customer onboarding is key. Transparency in business interactions is good for business, as it resonates well with values like responsibility, reliability, care, and honesty.


3. Establish internal controls that make it easier for you to stay compliant

While segregation of duties and internal auditing can ensure higher levels of accountability, document management systems can help you step up your data security, compliance, and efficiency when it comes to information exchange and document transactions.

Using a document management system can help you strengthen your data security and compliance, as well as reduce manual work in terms of capturing, organizing, and retrieving information. Additionally, setting clear data access roles and controlling mechanisms can help you prevent information misuse and document falsification. Further, keeping a document audit trail in a digital transaction ensures you track and register what happens with your documents at any point.

Why is meeting regulatory compliance so important?

  • First, you avoid getting fined for breaking the rules.
  • Second, you take accountability for your actions thus signaling your customers and business partners that you can be trusted.
  • Third, you are protected by the same rules you are complying with.


How can Penneo help you reduce the risk of business fraud?

With Penneo, you can streamline your document transactions to ensure higher data security, information and identity validation, and regulatory compliance.

Our KYC and AML solution provides you with the means to manage customer relationships in a simple, secure and convenient manner. It is easy to collect documents for verification, perform risk assessments, and continuously monitor your customer’s data while staying compliant with regulatory requirements.

Penneo also provides transparency and security in document transactions. You have a full overview of the process – from the moment a document is sent out until the final required action is performed. The audit log marks all activities, so you get an immediate notification if there is an attempt to alter the content.

Additionally, signing digitally with Penneo saves a lot of time, costs, and trouble. Multiple documents can be processed at once. No need to print, sign and scan manually, simply use a computer or smartphone to sign digitally. Identity verification and signing with eID improves security, content integrity, and compliance with international data regulations.



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