The Cost of Fraud: How Small Business Owners Are Tackling Risks and Challenges

In the current business landscape, small and medium-sized businesses (SMEs) across Canada are increasingly worried about the threat of fraud. These challenges have the potential to not only disrupt daily operations and undermine business stability but also have broader economic implications for the country.

Fraud against businesses occurs when an individual or group manipulates or deceives a business often through a 'scam' ─ a deceptive scheme designed to steal money, goods, services, or valuable information such as personal or banking data. Common examples include email phishing, spyware, fraudulent advertising, office supply scams, and fraudulent payments. It's important to note that direct theft, where no deceit is involved, is not considered fraud.

Key Takeaways

Small businesses' experience with fraud

• In the past 12 months, half of business owners (50%) have experienced either attempted or successful fraud.
• Sectors most impacted by fraud attempts include transportation (61%), finance, insurance, real estate, and leasing (59%), and arts, recreation, and information (57%).
• The likelihood of experiencing fraud attempts increases with business size.
• Four in five businesses feel more worried about fraud than ever before.
• Nine in ten business owners fear artificial intelligence will fuel more sophisticated fraud.
• Despite these concerns, many business owners (68%) are still confident in their defenses.

Common types of fraud experienced by small businesses

• Although email scams and phishing (85%), text scams (77%), and phone call scams (76%) are the most prevalent methods of attack, SMEs are more likely to fall victim to fraudulent payments (18%) and chargebacks (17%).
• Hospitality, retail, transportation, personal services, and arts, recreation, and information are the sectors most affected by chargebacks and fraudulent payments.

The impact of fraud and scams on small businesses

• 36% of businesses that experienced fraud suffered losses within the past year, with an average financial cost of $7,800
• Beyond financial losses, businesses experiencing fraud report significant impacts, including time wasted dealing with the situation (76%), negative emotional impact (51%) and decreased staff morale (23%).

Fraud prevention practices used by small businesses

• • To combat fraud, businesses are prioritizing stricter payment verification processes (50%), increased cybersecurity investments (36%), and enhanced employee training (32%).