Fraud isn’t just a problem for large corporations, it’s an everyday risk for small businesses, and often one that can be more damaging due to limited resources and tighter margins. Whether it’s a fraudulent wire transfer, a compromised vendor payment, or an employee clicking on the wrong link, a single incident can disrupt operations and erode trust.

The good news: most fraud is preventable. With the right controls, awareness, and response plan, small business owners can significantly reduce their exposure and act quickly if something does go wrong.

Start with Strong Internal Controls

The foundation of fraud prevention is simple: clear roles and consistent oversight.

Every business should know:

• Who has access to banking and financial systems

• Who records deposits. Ensure a second person verifies cash.

• Who reviews account activity on a daily basis. This is critical, as businesses/non-profits/clubs have only a 48-hour window to report fraudulent or unauthorized transactions, to avoid liability.

Equally important is separating responsibilities. No single person should control an entire financial process from start to finish. For example, one employee may record transactions while another verifies them. This division creates a natural safeguard against both errors and misconduct.

Finally, enforce policies consistently. Conduct occasional surprise reviews and take a close look at transactions when an employee leaves the organization. Consistency—not complexity—is what makes controls effective.

Lock Down Your
Financial Operations

Even in a digital world, basic financial safeguards still matter. Some simple but important practices include:

• Never signing blank checks

• Keeping checks and deposit materials securely stored

• Monitoring check numbers for consistency

When issuing payments:

• Use reputable vendors for check orders

• Avoid putting checks in unsecured mailboxes

Beyond physical controls, limit access to sensitive financial information. Only those who truly need access—such as a bookkeeper or CPA—should have it, and those permissions should be reviewed regularly.

A strong relationship with your bank also helps. Keeping your banker informed about changes in staff or vendors can make it easier for them to flag unusual activity.

Finally, make use of available security tools. Account alerts and services like Positive Pay add another layer of oversight by identifying suspicious transactions early.

Train Employees to
Spot Fraud

Technology is only as strong as the people using it. Many fraud incidents begin with a simple mistake—like clicking a suspicious link or responding to a fraudulent email.

Employees should be trained to:

• Verify unexpected email requests before acting

• Avoid clicking unfamiliar links or pop-ups

• Recognize common scam tactics

For businesses without an in-house IT team, working with an external provider to maintain system security is essential.

Other smart practices include:

• Keeping antivirus and system updates current

• Limiting access to non-work-related websites

• Using secure methods for sending sensitive information

A well-informed team is one of your strongest defenses.

Watch Your Vendors and Payments Closely

Vendor fraud is one of the fastest-growing threats to small businesses.

Establish a simple but strict rule: never rely on email alone to verify a payment change.

If a vendor asks to update banking information:

• Call them directly using a trusted number

• Confirm changes verbally before processing

Also watch for warning signs, such as:

• Requests to change payment timing

• Unusual discounts for early payment

• New contact information or communication channels

And always verify invoices against your own records before paying. Small discrepancies can signal a larger problem.

Don’t Overlook
Payroll Risks

Fraud doesn’t just come from outside your business. A common scenario involves fraudulent changes to employee direct deposit information. When an employee requests a change, verify the request in person or by phone/video. This simple step can prevent payroll funds from being redirected to a fraudster.

If Fraud Happens:
Act Immediately

Even the best safeguards can’t eliminate risk entirely. What matters most is how quickly you respond.

If you suspect fraud:

• Contact your bank immediately

• Review recent transactions carefully

• Place restrictions or holds on affected accounts

You may also need to:

• Disable online banking access

• Close compromised accounts and open replacements

• Change passwords across all financial systems

Acting quickly can limit losses and help recover funds.

Investigate and
Contain the Issue

Once the immediate threat is contained, begin a structured review. Ask key questions:

• Where did the fraud originate: internal, external, or a scam?

• What communication or action triggered it?

• When was it first noticed?

Gather and retain all relevant information, including emails, transaction records, and communication logs. This helps identify vulnerabilities and supports any insurance or legal claims.

Report and Get Support

Fraud incidents should not be handled alone. Depending on the situation, you may need to contact:

• Local law enforcement

• Federal reporting agencies

• IT professionals, accountants, or legal advisors

You should also review your insurance coverage to determine whether losses may be eligible for reimbursement.

In more serious cases, communicating transparently with customers or stakeholders may also be necessary.

Learn from the Experience

Every fraud incident provides an opportunity to improve. After resolving the issue:

• Review and strengthen internal controls

• Update policies and employee training

• Implement additional safeguards where needed

Fraud prevention isn’t a one-time task—it’s an ongoing process.

The Bottom Line

Fraud can affect any business, but it doesn’t have to be devastating. Small, consistent steps—daily account reviews, clear procedures, employee training, and careful verification—go a long way toward protecting your business.

Just as importantly, having a clear response plan ensures you’re ready to act quickly if something does go wrong.

In today’s environment, vigilance is essential—but with the right approach, it’s entirely manageable.

About the author: Jennifer Hisdorf, Vice President of Treasury Management, is dedicated to strengthening local governments throughout Allegheny and Beaver counties by fostering relationships and providing expert, tailored banking guidance to municipalities. Beyond her corporate endeavors, Jennifer is a dedicated non-profit specialist, devoting her time to serve on many boards including Dress for Success Pittsburgh. This connection enables her to provide guidance to non-profit organizations, local CDC’s, municipal committees and serving on the Economic Development and Beverly Road Association of her hometown of Mt. Lebanon.