Fraud is a federal crime that takes many forms, including credit card fraud, vendor fraud, and securities fraud. Businesses that fall victim face both financial loss and legal consequences. Read on to explore other types of frauds in business and how they are punished…
Trustpair helps companies stay ahead of these threats by detecting fraudulent activity before it escalates. It wipes out B2B payment fraud thanks to ongoing and automated account validation. Request a demo to learn more!
Criminal vs civil fraud: what are the differences?
In legal terms, fraud refers to false representation, dishonesty, and deceit.There are two types of fraud: civil law and criminal law.
| Criminal fraud | Civil fraud |
|---|---|
| Criminal fraud is when prosecutors have enough evidence to take the fraud case to court. The defendant must be proven guilty beyond a reasonable doubt. | Civil fraud is when a person or business brings the matter to civil court to recover losses. Guilt is decided on the balance of probabilities (more likely than not). |
Potential punishments:
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Potential punishments:
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The 4 elements of fraud
There are four legal elements of fraud:
- Intentional misrepresentation of a material fact – a fact stated that is purposely false, and it is significant
- Knowledge of falsehood in representation – the offender must have known of the falsity
- Reliance on the facts and truth by the victim – the victim was supposed to rely on the truth or fact or did rely on it
- Damage as a result of misrepresentation and reliance – this could be financial damage or other damage
6 types of frauds in business
Let’s take a look at some of the types of frauds in business. It is a non-violent and financially motivated criminal activity. Each case can cause a devastating impact on companies, employees, and clients.
Internal fraud
This occurs when an employee misuses a business’s property or assets for their own gain or to cause losses to others.
The fraud triangle can be applied to understand why people commit internal fraud. In this theory, the main three motivations are:
- Pressure – personal or financial need for money
- Opportunity – weak controls make it easier for fraudulent behavior
- Rationalization – employees justify the fraudulent activity
The risks of internal fraud schemes can be significantly lowered by removing one or more of the elements of the fraud triangle.
You can lower risks of internal fraud by:
- Spotting red flags in employee conduct
- Using strong controls and anti fraud measures
- Training staff to prevent false information and fraudulent schemes
Common examples include theft of cash, stock embezzlement, billing schemes, and misuse of equipment. Almost 75% of U.S. workers admit to stealing from an employer at least once. To prevent this, apply the 4-eyes principle so no one employee can commit and conceal a fraud case.
Identity theft
Identity fraud happens when criminals steal personal or financial data. It is one of the most common types of fraud affecting both individuals and businesses.
Common examples include:
- Credit card fraud using stolen details for the unauthorized use of accounts
- Phishing attacks that expose financial records
- Foreign currency fraud or mortgage fraud, where false documents mislead banks or financial institutions
- Tax fraud or pyramid schemes disguised as investments
Impacts on the victim:
- Reputational damage to a company
- Financial loss and legal costs from a fraud case
- Time spent correcting inaccurate information
- Exposure of sensitive information
These fraudulent schemes show how easily a company can fall victim. Strong due diligence and monitoring are essential to detect fraudulent activity early and prevent a devastating impact.
Vendor fraud
Vendor fraud occurs when illegal payments are made to genuine or fake suppliers. This form of business fraud can create significant financial loss for a company.
Common examples of vendor fraud include:
- Supplier impersonation with false payment details, often through phishing attacks
- Hacked supplier emails redirecting transactions
- An insider altering invoices for personal gain
These fraudulent schemes are difficult to detect and the victim may only notice once the real supplier sends an invoice. By then, money is already lost.
According to Trustpair’s study, vendor fraud is among the most common types of fraud cases, with 47% of businesses reporting attempts.
Payroll fraud
Payroll fraud happens when staff exploit the payroll system to steal money from their employer.
Fraudulent schemes may include:
- False hours or overtime logged
- Fake employees added to payroll records
- Adjusted salaries or bonuses for personal gain
Payroll fraud can involve a few thousand dollars or much more, depending on the company’s size. Detecting this type of business fraud requires regular checks of financial records and segregation of duties.
Healthcare fraud
Healthcare fraud impacts both individuals and businesses. It involves patients or medical providers who cheat the system to receive illegal payments or benefits.
The National Health Care Anti-Fraud Association (NHCAA) estimates that healthcare fraud has caused financial losses of tens of billions of dollars every year.
In 2025, the federal government announced charges against 324 defendants in a national healthcare fraud takedown, involving more than $14.6 billion in intended losses.
Payment fraud
Payment fraud occurs when a fraudster illegally creates or diverts payments.
Some of the ways that payment fraud takes place are:
- Fake invoices
- Business email compromise (BEC)
- Stolen credit card or debit details
- Payments made with a stolen identity
- Altered checks
- Making false customer profiles and attempting fake payments, like the $1.2b Union54 chargeback attempt
In 2024, nearly 90% of U.S. companies were targeted by at least one payment fraud attempt (you can find out more about payment fraud in our latest report).
How are frauds punished in the law?
The punishment for fraud depends on the type, the scale, and its consequences. In the U.S., fraud can be punished under criminal or civil law.
- Criminal fraud: Prosecutors must prove guilt beyond a reasonable doubt. Penalties include prison sentences in federal prison, heavy fines, restitution to victims, and forfeiture of assets gained through fraudulent schemes. In 2024, FTX founder Sam Bankman-Fried was sentenced to 25 years in prison and ordered to forfeit $11 billion for wire fraud and securities fraud
- Civil fraud: Individuals or businesses can sue to recover losses. The standard of proof is lower, and punishments usually involve fines and compensation rather than prison.
Fraud punishments in the U.S. can range from financial penalties to decades behind bars, depending on the scale of the crime.
Recap
There are many different types of fraud in law. They include internal fraud, identity fraud, vendor fraud, romance fraud, health care fraud, and payment fraud. Depending on whether it’s a criminal fraud case or a civil law case, this can depend on the punishment. Trustpair stops B2B payment fraud thanks to ongoing and automated account validation.