Preventing business fraud is a top concern for most businesses, and it’s no wonder. According to Experian’s Commercial Pulse Report published in March 2025, “Financial fraud against small businesses has increased by 70% since the start of the pandemic, costing billions annually. As fraud tactics become more sophisticated and digital channels continue to expaZasnd, the pressure on lenders and small businesses is mounting”.  

But how do businesses stay ahead of threats to keep sensitive data and cash flow safe? In this article, we uncover tactical steps business owners and leaders can take to protect assets from fraudulent activity.  

What Is Business Fraud Exactly? 

Business fraud is when an individual or group of individuals intentionally deceives a company to gain an unfair advantage, often causing financial loss. Business fraud can be internal (committed by an employee) or external (committed by an outside entity). While it is hard to fathom that a trusted employee could commit embezzlement, external pressures often make it possible for scammers to rationalize theft. In fact, there are three factors, known as the fraud triangle, that make business fraud possible and probable: (1) pressure or a financial need, (2) an opportunity to exploit gaps in systems or controls, and (3) a way to rationalize the behavior.  

Understanding these elements helps business owners and executives put the right checks and policies in place to reduce risk. In this article, we cover how business fraud is detected, how to prevent both types of fraud (internal and external fraud), and why it’s important to be aware of the pressures and incentives that could lead to someone making the wrong choice.  

How is Business Fraud Uncovered? 

By far, the most common way fraud is detected is through a tip (just under half of all fraud cases reported by Certified Fraud Examiners (CFEs) are discovered by tip), whether that is by an employee or an external party. In fact, tips outpace the second most common fraud discovery mechanism (internal audit) by about 3 times. A simple reporting system, such as a whistleblower hotline, email address, or web-based solution can be the single most effective fraud detection method. Of course, tips must be monitored, and employees have to feel that they are safe and their reports will be taken seriously in order for it to work.  

It’s important to note that often reviewing data and monitoring for fraud uncovers false positives. As an example, one method to detect fraud involves reviewing invoice numbers from vendors. It might appear suspicious if one of your vendors sends invoices with consecutive numbers. This could indicate fraudulent activity, however, it could also indicate a unique numbering system or show that you are the vendor’s sole client.  

Business fraud is usually investigated through a fraud examination, a structured investigation conducted by a forensic accountant or certified fraud examiner, often with the assistance of attorney counsel. The process begins when you or someone else within your business find something suspicious—whether from unusual financial activity, discrepancies in records, or other warning signs—and involves collecting and analyzing a wide range of evidence, including financial records, emails, digital data, and interviews with employees.  

Fraud investigations are often complex and time-consuming, often revealing unexpected findings and sometimes showing that initial suspicions were wrong. However, remember that even if no fraud is found, the examination gives you valuable insights into potential internal control weaknesses, operational gaps, and areas for process improvement, helping your business to come out stronger and more capable of defending against future fraud. Preventing fraud is almost always more cost effective than detecting and investigating fraud incidents reactively. 

How Do I Prevent Business Fraud in My Company? 

To prevent financial fraud, you need to define strategies for both internal and external fraud. Neglecting one or the other leaves “the door wide open” for scammers.  

Internal Fraud Prevention Strategies 

1. Strengthen Internal Controls 

The goal of introducing internal controls is to mitigate opportunities for employees to commit fraud. The first step to creating an effective internal control strategy is through segregation of duties. No single employee should supervise authorization AND record-keeping for financial transactions. 

Example: The person approving vendor invoices shouldn’t be the same person responsible for recording those transactions in the accounting system. 

Another way to implement internal controls is through the use of approval hierarchies. Require two or more authorizations for high-value payments, reimbursements, or contract signoffs. The more people you have involved in the authorization process, the less likely they are to collude to commit fraud. 

Next, utilize audit trails to maintain logs for all financial transactions and system access. These records deter fraud and aid in investigations. 

Finally, leverage technology oversight. Technology advancements have made nearly every business function more effective, and internal controls are no different. Ensure your business is using accounting software with role-based permissions, positive pay services from financial institutions, and automated alerts for irregular activity. 

2. Protect Company Funds and Payment Processes 

The more liquid the asset, the higher the risk of theft. No asset is more liquid than cash (whether access is physical or electronic). The goal of safeguarding payment processing is to protect cash and financial assets from internal and external misuse. One way to safeguard funds is through reconciliation. Ideally, your team will reconcile bank accounts on a weekly or monthly basis. The person performing the reconciliation should not be the person processing transactions.  

Company credit cards, if used at all, should also be monitored using an expense management platform to track, categorize, and approve transactions in real-time. An even safer option is to require employees to utilize their own credit cards and submit company-related expenses through an expense reimbursement process.  

During reconciliation and monitoring, take some time to verify that vendors are legitimate and not duplicates or fictitious entities. 

3. Safeguard Payroll Systems 

Prevent “phantom employees” or payroll manipulation. How do you prevent these ghost employees? Make sure that your staff is using a reputable payroll vendor (outsourced payroll systems reduce opportunities for internal tampering), conduct periodic audits comparing actual staff rosters to time records, and finally, separate the duties of payroll processing and payroll approval/funding.  

4. Consider Engaging Independent Oversight 

Bringing in an impartial third-party service provider for unbiased checks can help your organization detect fraud early. You might consider engaging an independent Certified Public Accountant (CPA) for an annual external audit or review. However, bear in mind that audits and reviews are not designed primarily to prevent or detect fraud. You could also work with your CPA or a Certified Fraud Examiner (CFE) to evaluate vulnerabilities and assist in designing internal controls and fraud detection systems.  

Working with a fractional accounting service, such as a Virtual CFO, can also provide safeguards that limit opportunities for fraud.  

External Fraud Controls 

1. Defend Against Cyber and External Threats 

Cybersecurity strategies defend against cyber scams (like phishing, malware, and ransomware) and keep sensitive information safe from fraudsters. There are a few ways to stop cyber threats including: 

• Adopt a Zero Trust cybersecurity model: Verify every user and device before granting system access. 

• Implement multifactor authentication (MFA): Require MFA for email, banking, software, and server access.  

• Train employees regularly: Teach staff to recognize phishing attempts, suspicious links, and fake invoices. 

• Keep technology updated: Ensure technology safeguards, such as firewalls, are kept up to date.  

• Use vendor and client verification protocols: Confirm payment or change requests through a second channel (e.g., phone call) before acting. 

2. Continuously Update and Review Policies 

Do not neglect your internal policies and procedures. Not only do these policies give employees guidance on behavior expectations, they also function as a backstop if a fraud investigation is ever necessary. They can provide a clear guidepost on what is and is not acceptable.  

As technology evolves, so do the schemes fraudsters use to steal financial information and assets. Keep your business safe by reviewing controls annually. Analyze whether any new fraud risks have revealed themselves and adjust procedures accordingly.  

But how do you know if there are new fraud risks? Well, you have to stay informed. Follow updates from organizations like the AICPA or ACFE or your industry’s professional associations to determine if new strategies are needed to protect against cybercriminals. The ISO 37003:2025 Guide is another great resource for those looking to step up their fraud prevention measures. 

3. Foster a Culture of Accountability and Transparency 

Arguably the best fraud prevention strategy is making it a part of a positive company culture (tone-at-the-top). How does a business owner do this? By establishing safe, anonymous reporting channels for employees to report suspicious activity. It’s also important that executives act as role models, demonstrating integrity in decision-making and financial practices. 

Drive incentive by recognizing departments and employees that adhere to policies and flag potential risks responsibly. 

While these other tactics for a positive company culture are important, creating employee assistance programs might just be the most effective. Provide programs that assist employees when they are in financial need, demolishing the motivation to commit fraud in the first place. 

While most fraud prevention controls are designed to mitigate the “opportunity” pillar of the fraud triangle, a supportive and positive company culture also mitigates the “pressure” and “rationalization” corners as well, taking a holistic approach to fraud prevention. 

To prevent financial fraud from impacting your business, you must first understand why fraud is committed, how fraud is detected, and security measures necessary to prevent fraud—both internal and external.  

To keep things simple, we created a checklist of items you should be reviewing periodically for signs of fraud: 

If developing a fraud prevention plan feels overwhelming, or if you suspect your business may already be impacted by fraud, our fraud and forensics team is here to help.