Fraud rarely begins with a dramatic cyber heist or a shadowy criminal network—it often starts quietly with a small oversight or a single deceptive transaction. Sometimes it starts with a single invoice, a familiar-looking email or an employee shortcut that slips through the cracks. For small and mid-sized businesses (SMBs) balancing growth with limited resources, these moments can add up to real losses both in finances and reputation. 

As automation, artificial intelligence (AI) tools and digital workflows reshape how SMBs operate, the entry points for fraud have multiplied. Staying protected now requires not only vigilance, but a deeper understanding of how fraud adapts to new technology and behaviors. 

In this first installment of our Small Business Guide to Fraud Prevention series, we asked Steve Lenderman, isolved’s Head of Fraud Prevention, to discuss the current fraud landscape. By understanding key fraud risks, warning signs and practical prevention steps, SMBs can reduce exposure and safeguard their business. 

Q.        How has the fraud landscape changed in the past few years, especially with more businesses operating digitally? 

With more digital onboarding and remote access, identity fraud has surged. Stolen credentials are used to open accounts, apply for loans or access sensitive systems. 

Additionally, AI-generated content, like fake voices, images and deepfakes, has made scams more convincing than ever. Fraudsters can now simulate real people or brands with alarming accuracy. 

Q.        Are there specific industries within the SMB space that are more vulnerable to fraud? 

Yes, some industries are more vulnerable to fraud due to operational efficiencies and data collection.  

A few examples include: 

• Retail & eCommerce: Their high volume of digital transactions makes them prime targets for payment fraud, chargebacks and fake returns. 
• Healthcare & Wellness: Handling sensitive patient data makes them attractive for identity theft and ransomware attacks. 
• Professional Services (Legal, Accounting, Consulting): Frequent use of wire transfers and invoicing opens the door to business email compromise (BEC) and fake invoice scams. 

Additionally, these industries are more vulnerable due to:  

• Limited budgets for fraud prevention tools and staff 
• Fewer layers of defense compared to large enterprises 
• Rapid digital adoption without matching security upgrades 
• Lack of formal training on fraud awareness for employees 

Q.        What red flags or warning signs do SMBs often miss? 

SMBs often miss subtle signs of fraud, like inconsistent customer data, unusual transaction patterns and internal access anomalies, especially when they lack automated detection tools. 

Q.        What are some of the most common types of fraud? 

These are the most common types of fraud affecting SMBs: 

• Phishing & Social Engineering: Phishing emails and texts trick employees into revealing credentials or making unauthorized payments, such as BEC scams that impersonate executives or vendors to redirect funds. 
  • Warning Signs: 
    • Emails with an urgent tone, unexpected attachments or spoofed sender addresses 
    • Requests for login credentials, wire transfers or sensitive data 
    • Links that redirect to unfamiliar or misspelled domains 
  • Risk Factors: 
    • Lack of employee training on fraud awareness 
    • No email filtering or domain spoofing protection 
    • Remote work setups with unsecured devices or networks 
• Fake Invoices & Billing Scams: Fraudsters submit fraudulent invoices for services never rendered or inflate legitimate ones. These types of scams often target SMBs with decentralized or manual payment processes. 
  • Warning Signs: 
    • Invoices from unfamiliar vendors or with slight name variations 
    • Sudden changes in payment instructions or bank details 
    • Duplicate or inflated charges for routine services 
  • Risk Factors: 
    • Decentralized or manual invoice approval processes 
    • No vendor verification or audit trail 
    • High volume of third-party service providers 
• Payroll Fraud: Employees may manipulate timesheets, create ghost employees or receive duplicate payments. In fact, research from Association of Certified Fraud Examiners found that SMBs are twice as likely to experience payroll fraud compared to larger firms. 
  • Warning Signs: 
    • Inconsistencies in timesheets or overtime claims 
    • Payments to unknown or duplicate employee accounts 
    • Sudden changes in salary or bonuses without HR approval 
  • Risk Factors: 
    • Lack of segregation between payroll and HR functions 
    • No audit logs or approval workflows 
    • High turnover or seasonal staffing 
• Check Fraud & Payment Instrument Abuse: Includes forged, altered or counterfeit checks, as well as misuse of ACH, wires and credit card instruments. 

Q.        What are some preventive measures SMBs can put in place? 

When it comes to prevention, there are several steps SMBs can take to stay ahead of fraud, including: 

• Enable multi-factor authentication (MFA) for all systems, especially email, banking and administrative portals. 
• Deploy email filtering and anti-phishing tools to catch spoofed domains and malicious attachments. 
• Train employees regularly in recognizing phishing, social engineering and impersonation tactics. 
• Verify payment or sensitive requests via secondary channels (e.g., phone call confirmation). 
• Implement dual authorization for wire transfers, ACH payments and check disbursements. 
• Use Positive Pay services to detect check fraud before clearing. Positive Pay services is a fraud prevention service offered by banks that allows the business to pre-authorize payments. Simply put, only checks or electronic payments that match a list the business provides will be processed by the bank. 
• Reconcile accounts daily or weekly, based on risk level. For example, weekly reconciliation is recommended for high-volume accounts.
• Segregate duties between those who initiate, approve and reconcile payments and consider adding advanced identity verification. 

Fraud prevention begins with awareness, consistency and the right safeguards. By understanding how fraud occurs, recognizing early warning signs and implementing preventive measures like internal controls, employee training and Positive Pay services, SMBs can dramatically reduce their risk. Staying ahead of fraud isn’t about reacting to every new threat — it’s about building a culture of vigilance and accountability. With informed strategies and ongoing attention, small businesses can protect their people, their profits and their peace of mind. 

To stay in the know about the latest fraud, cyber and security trends, register for the upcoming webinar on December 9—”Inside the Next Wave of Cybercrime: 2026’s Biggest Scams and How to Outsmart Them.” 

 

 

^{Disclaimer: The information provided herein is for general informational purposes only and is not intended to be legal, investment or tax advice. It is not a substitute for professional legal, investment or tax advice, and you should not rely on it as such. No attorney-client or accountant-client relationship or any other kind of relationship is formed by any use of this information. The effective date of various provisions, amendments, and regulatory guidance may impact eligibility. The accuracy, completeness, correctness or adequacy of the information is not guaranteed, and isolved assumes no responsibility or liability for any errors or omissions in the content. You should consult with an attorney, investment professional or tax professional for advice regarding your specific situation.} 

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