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Popular Scams That Small Businesses Should Beware

Small business owners never lack for things to worry about in running their companies. Innovation. Budgeting. Marketing. Running payroll. And right now: a high-inflation, possibly recessionary environment.

And on top of all of that, entrepreneurs have to keep their eye out for fraud.

Last year, scams were the most experienced form of crime in the U.S., according to SCORE — the nation’s largest network of volunteer, expert business mentors

From 2019 to 2020 alone, the number of reported scams worldwide grew from 139 million to 266 million — more than 90% — thanks in part to COVID, as well as numerous countries starting to report fraud numbers. SCORE says America’s number of reported scams skyrocketed by 22%. (And you’ll note we say “reported” — only between 3% and 15% of consumers report scams, depending on the country.)

We’ve said it before: Small business fraud can be fatal. So the last thing you (and your business) can afford is falling prey to popular scams.

Today, we’ll try to help you keep watch by showing you what to look out for. Here are five of the most popular scams targeting small businesses today.

5 Popular Scams That Small Businesses Should Beware

#1: Spear Phishing

You get an email, purportedly from the IRS, telling you that you’ll be audited unless you provide them your checking account information to make a $500 payment. It’s not the IRS, of course, and when you provide that info, they empty your bank account.

That’s “phishing,” and it’s one of the most common scams around.

“Spear phishing” is a more specific type of attack where a fraudster poses as someone you know/interact with to try to score your financial information or other sensitive data. For instance, you might get an email from “your boss” saying to go out and buy some Visa gift cards to give out to other employees — and to give your boss the card numbers and PINs once you’ve bought them. But it’s not your boss — it’s a different email address made to look like your boss’s email, using capital I’s for lowercase L’s and such.

Everyone in your company must be vigilant about email in general, but especially as it pertains to any email requesting money or protected data. Train your employees to look carefully at sender emails, to verify financial requests (say, with a call), and to never click links that look suspicious.

#2: Fake Invoices

Fake invoices fall within the same realm as phishing. A fraudster will send along an invoice and either say that it’s urgent, or say that it’s on behalf of one of your vendors. You’re going through a pile of invoices and just pay it without thinking, and boom — money is out the door, and you’re none the wiser.

The fix for this is simple, if not a little more work-intensive: Take your time. Always carefully look over every invoice you receive. Make sure you recognize the vendor, confirm that services were performed or products delivered, and if you think someone is trying to fraudulently invoice by disguising themselves as another vendor, independently reach out to that vendor and determine whether they sent that invoice.

#3: Buy Now Pay Later Scams

The past few years have seen a rapid rise in “buy now pay later” (BNPL) services — effectively installment plans — provided by companies such as Affirm and Afterpay. Like with any newer technology, however, BNPL is rife with scammers. Digital safety firm Sift says BNPL fraud jumped 54% year-over-year in 2021.

One type of BNPL fraud involves opening an account with a stolen identity. Some BNPL providers only conduct soft credit checks, so it’s easy to open a fraudulent account and begin making bogus purchases.

Another type of fraud involves taking over an existing BNPL account. A fraudster will use phishing or other techniques to get a customer’s credentials, then they take over the account and have items sent to their own address.

There’s little businesses can actively do to prevent this kind of fraud, other than being selective and only working with BNPL firms with strong fraud-prevention measures.

#4: Directory Scams

Directory scams have been around much longer than these other popular scams.

The con is easy: A scammer will say they’re from a business directory — that directory might be fake, or it might be real but the person doesn’t work for it. In both cases, the scammer will ask if you’d like to be listed in that business directory. They bill you, you pay, and they disappear — and you get nothing out of the exchange.

Never pay someone offering to list you in a business directory without confirming the directory exists, and independently verifying that someone from the directory was trying to contact you.

#5: Fake-Check Scams

Fake-check scams are also a well-worn means of fraud. Someone contacts you about ordering something. They send you a check — but, as it turns out, it’s higher than the amount you requested. The customer tells you they made a mistake, that the check was meant for a different vendor, and asks you if you could cash the check and wire the amount to the business it was meant for. Their hope: That you will cash the check and wire the funds before the bank realizes the check was fraudulent.

You can protect yourself from this scam by using common sense. If anything smells off, contact the issuing bank to determine the check’s legitimacy. If someone pays you more than they should have, or wants to route money through a third party, these are red flags. So is urgency — if someone ever pressures you to do something right then and there, it’s a good chance they’re trying to get away with fraud.

Always Have Control of Your Finances

You always want to have a watchful eye over your finances — both to ensure you’re on the right track, but also to make sure fraudsters aren’t stealing money.

McManamon & Co. can help small and midsize businesses with its accounting services. We work closely with you to create financial statements, maintain records and provide expert guidance on financial accounting matters. And you won’t just hear from us at tax time — we can help you all year.

Learn more about how McManamon can provide a boost to your small business. Call us at 440.892.8900 or contact us online today.

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