Preventing identity theft

As with any financial fraud, it is much easier and less expensive to prevent the crime than clean up afterward. Monitor your credit accounts regularly. Many credit card companies have online access, which makes it easier to keep a close eye on your account. Rather than the once-a-month statement, consumers can look for fraudulent charges daily or weekly.

Order a copy of your credit report. The Fair Credit Reporting Act requires each of the three credit reporting agencies to provide you with a free copy of your credit report, at your request, once every 12 months. Stagger your requests for these three reports so that you can monitor your credit throughout the year. Carefully examine the credit agency data, and report any errors or irregularities immediately.

Secure personal information in your home and office, especially if strangers have access to those areas. When discarding financial information such as store receipts, credit card offers, canceled checks, bank statements, and credit card statements, always use a shredder. Throwing these documents in a garbage can without properly destroying them is an identity theft waiting to happen.

Don’t give out personally identifying information on the phone, through the mail, or over the Internet unless you are sure that you know who you’re dealing with. It is amazing how many frauds occur because a thief initiates a phone call to an unsuspecting target. Never reveal your Social Security number, mother’s maiden name, or account numbers without verifying who needs it and why it is needed.

Companies are now offering insurance products that claim to give protection against the costs associated with resolving the theft of one’s identity. While this may offer some financial relief, it does not ease the time commitment required to resolve an identity theft.

The most important part of dealing with an identity theft is immediate action. Initiating fraud alerts and securing accounts can be some of the most important steps you will take. Doing so immediately will make it harder for an identity thief to profit from your misfortune.

Identity theft: Recovering after your identity has been stolen

Each case of identity theft is different, and the lasting effects of this fraud depend upon the type of theft, whether or not your information was sold or passed on, and whether the thief is caught. While the direct monetary losses are often limited by credit card issuers, the effort to clean up the mess left by a thief can be monumental.Upon discovering that your identity has been stolen, bank accounts and credit card accounts should be closed immediately. Replacement accounts should be opened, with secure passwords attached to them. Don’t cancel credit card accounts all together. Opening brand new accounts can be difficult after an identity theft, so it is wise to keep your accounts, but have the credit card companies change the account numbers.

Those who have had their identities compromised can register a fraud alert with the three credit reporting agencies. This may help stop credit accounts from being opened in your name, and it might not. Creditors are not required to run credit checks before opening accounts. If they do check your credit, they will be notified of the alert, and should verify identity before issuing credit. But as you can see, this is not a failsafe measure, since not all creditors run credit checks.

If government-issued identification is stolen, such as a driver’s license, the victim should contact the agency to cancel the identification and issue a replacement. Many agencies will also flag your record so that no one else can get an identification document in your name.

Police reports are often necessary. While this may be a more frustrating part of the process, it may be necessary to help rectify fraudulent accounts in your name. It is also a good idea to file a complaint with the FTC.

Identity theft: Signs that your identity has been stolen

Identity theft affects countless consumers and businesses each year, costing millions and maybe even billions of dollars. In 2004, the Federal Trade Commission received over 635,000 consumer fraud and identity theft complaints with reported losses of $547 million. During 2005, the FTC received 685,000 consumer identity theft complaints with reported fraud losses of over $680 million.The number of complaints and the total losses have been increasing year after year. Still, identity theft doesn’t seem to be a major concern to many businesses and consumers. Until identity theft hits home and ruins someone’s finances, many don’t consider the consequences.

It is common for identity thieves to obtain credit in the victim’s name, including credit cards, utility service, vehicle loans, and apartment leases. Unrecognized accounts and inquiries on a credit report signal a problem. This is why it is so important for consumers to regularly examine their credit reports.

Denial of credit or unfavorable credit terms with no apparent reason will also signal a problem. Clearly, being contacted by a debt collector for merchandise or services you didn’t purchase is problematic. Failure to receive your normal bills in the mail may indicate a theft of mail or an identity thief who has changed the address on your accounts.

Identity theft: How identities are stolen

It has become commonplace to hear reports of data compromises at businesses that store large quantities of consumer data. Companies like ChoicePoint, Citigroup, and LexisNexis have made headlines by misplacing or exposing consumer data. Computer hackers can expose millions of individuals in mere minutes.

While large-scale data compromises unfortunately are becoming more common, they should not overshadow the minor incidents that start an identity theft scheme.

Even sophisticated fraudsters sometimes use low-tech methods to accomplish their crimes because they’re so easy.

Outgoing mail is an easy way for identity thieves to get their hands on personal information. A mailbox at the end of a driveway with a flag up might as well hold a “steal me” sign. These mailboxes are not secure, and it only takes seconds for a thief to steal your mail which includes account numbers and personal information.

Dumpster diving is one of the less glamorous ways to get personal information. Thieves won’t hesitate to dig through trash to look for bank statements, credit card receipts, and credit card offers.

Modern day methods of stealing data include skimming and phishing. Skimmers obtain debit and credit card numbers by swiping your card through a small data storage device. The device harvests the information on the card’s magnetic strip and allows the scammer to create cards with your account information.

Phishers pose as legitimate companies via email and convince consumers to “verify” their personal data. Often they will claim that account data has been compromised, and their account will be frozen unless they provide their social security number, password, and other identifying information.

The Internet has created many opportunities for data theft. While stealing wallets and purses might be one simple way to obtain personal information, technology provides access to many more potential victims.

5 Myths About Fraud: The Conclusion

From my Wisconsin Law Journal article 5 Myths About Fraud:

We’ve all heard so much in the news about fraud over the last several years. Not a day goes by that we don’t hear about an executive caught with his hand in the cookie jar, a company that failed to follow proper accounting rules, or a compensation structure that led someone to cheat with the numbers.

In some ways, I think people are becoming immune to fraud. The cases don’t seem as significant as they would have been five years ago. They’re not as shocking as they used to be. It is sad that fraud is becoming more commonplace. And the more we hear about fraud, the more I think companies run the risk of not taking it seriously.

Most importantly, I think people are running around with some big misconceptions about employee fraud. If they mistakenly believe their company is not at risk, they are probably not actively preventing fraud. Companies must know the truth about fraud and its perpetrators in order to actively protect themselves.

The five myths about fraud we’ve looked at this week:

1. Our company does not have an internal fraud problem.

2. Most people are honest and won’t commit fraud.

3. If our company follows government regulations, we will be protected against fraud.

4. Small frauds aren’t important enough for management to worry about.

5. Fraud will be detected by our auditors.

The Solution
Preventing fraud in companies all comes back to active prevention techniques and educating employees about fraud. First, owners and executives must be aware that they are very much at risk of experiencing internal fraud, and that the statistics show that the losses can be expensive. Then they need to take decisive action in formulating a fraud prevention program.

Education of everyone is still a very important part of fraud prevention. No company is immune to the problem, and no employee is completely free from the possibility of committing a fraud one day. After owners and executives appreciate the true magnitude of the problem, it will be through action that fraud will be prevented at their companies.

5 Myths About Fraud

From my Wisconsin Law Journal article 5 Myths About Fraud:

The following are five of the fraud myths that I regularly run into in my fraud investigation practice. Whether owners and executives actually utter these out loud or not, merely buying into these myths mentally can be a recipe for disaster.

5. Fraud will be detected by our auditors. History has shown us that a company’s independent auditors cannot be relied upon to find fraud. This is true primarily because audits are not designed to detect fraud. They are designed to give “reasonable assurance” that the numbers shown on the financial statements are materially accurate.

Because fraud involves the active concealment of the truth, it makes it difficult for auditors to discover. Further, auditors have a tendency to become complacent with their clients. They see the same things year after year in the audit, and they may stop paying close attention. Employees who are concealing a fraud may also be comfortable with the auditors and know what procedures are coming. If that’s the case, count on the employees to be very careful with the fraud as it relates to those expected procedures.

Auditing rules have attempted to address how auditors approach the potential for fraud within companies. While the current rules are somewhat better than those of several years ago, a traditional independent audit still cannot be relied upon to detect fraud. Executives who believe differently are setting their companies up for disaster.

5 Myths About Fraud

From my Wisconsin Law Journal article 5 Myths About Fraud:

The following are five of the fraud myths that I regularly run into in my fraud investigation practice. Whether owners and executives actually utter these out loud or not, merely buying into these myths mentally can be a recipe for disaster.

4. Small frauds aren’t important enough for management to worry about. Virtually every big fraud started out as a small fraud at one point. Whether it is a minor theft of cash or a financial statement manipulation intended to cover up a substandard quarter, what starts out as a small fraud can quickly grow into a major fraud scheme. A theft of $500 may not seem significant enough for management to devote time and effort to the problem. But what if an employee was stealing $500 a week for three years? Suddenly, there is a theft of over $75,000, which could be very material to the company.

It’s important for companies to take small frauds and ethical lapses seriously. Not only does management want to cut off frauds while they are in their early stages, they also should be sending a message to employees that dishonesty is not tolerated. A zero tolerance policy is a necessary part of any good fraud prevention program.

It may be expensive to monitor and investigate smaller thefts from the company. However, in the long run, the cost will be worthwhile because the company will have stopped frauds from growing into the hundreds of thousands and millions of dollars. Therefore, an effective fraud prevention program will contain components that help the company discover fraud early.

5 Myths About Fraud

From my Wisconsin Law Journal article 5 Myths About Fraud:

The following are five of the fraud myths that I regularly run into in my fraud investigation practice. Whether owners and executives actually utter these out loud or not, merely buying into these myths mentally can be a recipe for disaster.

3. If our company follows government regulations, we will be protected against fraud. Unfortunately, the current accounting rules and regulations do not really provide protection against fraud. Sarbanes-Oxley is probably the most widely-recognized regulation dealing with fraud. It has had some positive effects because it has forced companies to review and document their policies and procedures.

Companies have spent enormous amounts of money on implementing Sarbanes-Oxley, and it’s probably discouraging to admit that even such an extensive project isn’t really preventing fraud. The regulation forces management and the board of directors to accept responsibility for issuing accurate financial statements, however, it doesn’t really ensure that companies have fraud prevention procedures in place.

In order to effectively prevent fraud, companies must create and implement policies and procedures specifically designed to deter and detect fraud. Again, this should be accomplished with the help of an anti-fraud professional who is experienced in the methods used by corporate fraudsters. A good fraud prevention program will actively prevent and detect fraud while still complying with the applicable regulations.

5 Myths About Fraud

From my Wisconsin Law Journal article 5 Myths About Fraud:

The following are five of the fraud myths that I regularly run into in my fraud investigation practice. Whether owners and executives actually utter these out loud or not, merely buying into these myths mentally can be a recipe for disaster.

2. Most people are honest and won’t commit fraud. This is a dangerous approach to take to the business of fraud. It is true that most people are generally honest. But to rely on this instead of putting controls in place to prevent fraud is a big mistake.

While it’s wise to hire those with a track record of honesty, past behavior doesn’t necessarily predict future behavior. Almost 88 percent of employees and executives who commit fraud against their employer have never before been charged or convicted of a fraud-related offense. This means it’s nearly impossible for companies to predict who is going to commit fraud and when they are going to do it.

It is a fact that honest people can and do commit fraud. Outside pressures can cause people to behave in ways they normally would not. Things that could push someone toward fraud include addictions, divorce, overwhelming debt, and gambling problems. When pressures like this are present, it’s difficult to predict who will commit fraud.

In the end, those who commit fraud come from all walks and ways of life. From clerks to executives, no one is immune. Thieves come from all social classes and all economic backgrounds. If given a strong motivation and ample opportunity, anyone can commit fraud against her or his employer.

5 Myths About Fraud

From my Wisconsin Law Journal article 5 Myths About Fraud:

The following are five of the fraud myths that I regularly run into in my fraud investigation practice. Whether owners and executives actually utter these out loud or not, merely buying into these myths mentally can be a recipe for disaster.

1. Our company does not have an internal fraud problem.

While companies would like to believe they have good employees and adequate controls to prevent fraud, the fact of the matter is that 45 percent of companies will be significantly affected by fraud, according to one international study. A separate study estimates that the average internal fraud will cost $159,000, and that almost one-fourth of fraud cases will cost companies over $1 million each.

Companies cannot afford to ignore the risk of fraud and the likelihood that fraud is occurring internally. It is too expensive, particularly when one considers the fact that there are many indirect costs of fraud, including investigation and legal costs, employee attrition, and decreased employee morale.

Actively fighting fraud means implementing policies and procedures that prevent and detect fraud. Anti-fraud professionals who are experienced with the common methods of fraud can be invaluable to this process. Whether a company gets there with employees or outside consultants, it is important to secure company information and assets to prevent internal fraud.