Protecting Your Business from Fraud: 6 Red Flags to Watch For

Onyx Accounting
Jul 17
2 min read

Fraud can happen to any business, regardless of size or industry. For small businesses, the impact of fraud can be especially devastating — not only financially, but also in terms of trust, reputation, and operational disruption.

The good news? With vigilance and the right safeguards, you can reduce your risk significantly. Recognizing common red flags early can help you catch potential fraud before it causes serious damage.

Here are 6 key warning signs every small business owner should watch for:

1. Unexplained or Missing Documents

If financial records, invoices, or contracts suddenly go missing or are incomplete, it’s a major red flag. Fraudsters often try to cover their tracks by altering or destroying documents.

Tip: Implement strict document management policies, maintain backups, and regularly reconcile paperwork with accounting records.

2. Unusual or Unauthorized Transactions

Keep an eye out for transactions that don’t fit your usual patterns—such as unexpected vendor payments, unusually high refunds, or transfers to unknown accounts.

Tip: Use accounting software with alerts for suspicious transactions, and review bank statements monthly.

3. Employees Living Beyond Their Means

A sudden change in lifestyle—new cars, expensive vacations, or other signs of wealth—without an obvious explanation can indicate fraud, especially if the employee has access to financial resources.

Tip: Maintain separation of duties in financial roles and conduct regular audits to spot discrepancies.

4. Reluctance to Take Time Off

Employees who handle money but are reluctant to take vacation or sick days might be trying to avoid detection, since fraud is harder to hide when someone else temporarily takes over their duties.

Tip: Enforce mandatory vacation policies and cross-train staff so others can cover critical financial functions.

5. Vendor or Customer Complaints

If vendors or customers start complaining about invoices, payments, or discrepancies, it could point to fraud involving billing or accounts receivable.

Tip: Regularly verify vendor and customer accounts, and promptly investigate complaints or inconsistencies.

6. Pressure to Override Controls

If someone pushes to bypass your normal approval processes—such as asking to expedite payments without proper documentation or waiving controls—it’s a strong warning sign.

Tip: Establish clear approval workflows, and empower your team to question unusual requests without fear of retaliation.

Protect Your Business With Proactive Measures

Aside from watching for red flags, put proactive policies in place to prevent fraud from happening:

Separate financial duties among different employees
Conduct regular internal and external audits
Use secure accounting and payment software
Educate your team on fraud risks and prevention
Maintain open communication and encourage reporting concerns

Don’t Let Fraud Derail Your Business

Fraud can strike when you least expect it, but staying alert and creating a culture of transparency and accountability can go a long way in protecting your small business.

If you’re unsure about your current fraud prevention measures or want to strengthen your financial controls, we’re here to help.