Financial Fraud: How to Prevent Yourself from Being a Victim

International Fraud Awareness Week is November 13-19. The Association of Certified Fraud Examiners (ACFE) established this event in 2000 to raise awareness of the global problem of financial fraud.

According to the Association of Certified Fraud Examiners, the goal of this event is to raise awareness of fraud. ACFE also encourage business leaders and employees to mitigate fraud through providing educational materials and distributing anti-fraud information.

What Is Financial Fraud?

Phishing is one way that criminals commit financial fraud.

Financial fraud involves the use of deception to achieve a goal, which is often a financial gain. In some fraud cases, someone knowingly lies to a victim or withholds essential information information that causes that victim to experience financial loss.

Financial fraud takes different forms:

  • Ponzi schemes or pyramid schemes, such as in the case of Bernie Madoff – falsely presenting investments by using money from new investors to pay current investors, instead of providing a real return on investment
  • Embezzlement – using funds for a different purpose than what those funds were originally intended
  • Tax fraud – falsifying information on a tax return
  • Credit card fraud – using someone else’s credit card illegally
  • Insurance fraud – trying to get an insurance benefit without being entitled to it

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The Most Common Forms of Fraud

Some of the most common frauds include:

  • COVID-19 scams – This fraud occurs when someone is contacted by a criminal claiming to be a contact tracer or medical provider. The criminal obtains personal information such as bank account numbers, Social Security numbers, birth dates, and other information that could be used in identity theft.
  • Telephone scams – A criminal gains someone’s trust or invokes a sense of fear to steal money or personal information. I have seen telephone scams go as far as the caller telling someone that they are holding a loved one hostage. The scammer tells the victim that if a ransom is not paid, the hostage will be harmed.

More common telephone scams include false promises for services, criminals who identify themselves as government representatives, and offers of free grants and money if the person will provide their bank account information.

  • Census scams – The scammer contacts a victim by phone or in person and pretends to be a Census Bureau employee. After gaining the victim’s trust, the scammer collect personal information to use in identity theft.
  • Charity scams – These scams tend to rise after hurricanes and other disasters. Victims are conned into donating money to people in need, but the criminal steals the money and uses it for another purpose instead.
  • Phishing – Legitimate-looking emails are sent to victims under the guise of a legitimate business to compel someone to provide personal information such as passwords and/or financial information. Phishing attempts often appear very convincing; criminals use company logos and official-sounding emails to trick victims into believing that a communication is legitimate.

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How to Avoid Becoming a Fraud Victim

There are many steps that you can take to avoid becoming a victim of fraud. When you’re contacted by someone who might be a scammer, get that person’s contact information, search online to find the phone number of the organization they claim to represent and call them back using that legitimate phone number.

It’s also helpful to carefully review emails for indicators of phishing, especially if the email urges prompt action. Often, a phishing email contains grammatical errors or other indicators that it is not legitimate. If you have any concerns, then it is best to contact an organization directly by phone.

Being cautious when anyone cold-calls you asking for a financial investment is another useful step in protecting yourself from financial fraud. Ideally, work with a licensed and reputable fiduciary who must maintain a legal standard to ethically manage your money.

Overall, exercising caution and taking the time to double-check when someone unexpectedly contacts you to ask for money or information is your best defense against financial fraud. If you do become a fraud victim, reach out to the appropriate authorities for help.

Financial Fraud: How to Prevent Yourself from Being a Victim is written by Dr. Jarrod Sadulski for