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What is Financial Fraud?

This type of fraud is an intentional act of deception involving financial transactions for personal gain. Fraud is a civil law violation. Most fraud cases involve complicated transactions conducted by criminals you would not expect. These can include business professionals with specialized knowledge and criminal intent.

People who commit fraud can contact their victims through different methods including face-to-face, phone calls, text and/or emails. Internet fraud is the fastest growing area of fraud because of these contributing factors:

  • Most times, it is difficult to check the identities and legitimacy of individuals and companies.
  • It is easy for “fraudsters” to redirect visitors to fake sites to steal personal information.
  • The international dimensions of the web make it easy to hide a criminal’s true location.

Keep reading to find more information on financial fraud.

Types of Financial Fraud

Most times, the weapon of choice for fraud criminals come in the form of a telephone number, letter or a brochure offering free vacations just to name a few. Direct selling of goods is not the only type of fraud. Some target institutions or businesses. Types of financial fraud that victimizes businesses include the following:

  • Check Fraud: Checks bounce when there are insufficient funds. It is a good idea to refrain from providing a good or service until the check has cleared.
  • Banking/Identity Fraud: This happens when someone uses your banking information to steal from you. Take advantage of the security measures for online banking to ensure your safety.
  • Direct Theft: This happens when an employee(s) pockets a payment without processing the sale.
  • Asset Misappropriation: This can include check forgery, theft of money or inventory theft. Studies have shown this type of fraud accounts for over 91%.
  • Bribery and Corruption: This fraud includes schemes such as kickbacks, bribes to influence decision making and manipulation of contracts.

It is easy for costs to rack up when a business becomes a victim of this crime. Consumer fraud happens when an individual suffers a financial or personal loss from illegitimate, deceptive or misleading business practices. Financial fraud that affects individuals include:

  • Identity Theft: This occurs when someone steals personal information and uses it to impersonate the victim to commit fraud, theft or other crimes. The stolen information can include name, SSN, credit card or bank account information.
  • Fake Charities and Lotteries: Scammers set up fake charitable organizations and convince donors to give money that will go directly into the imposter’s pocket.
  • Scams on the Elderly: Friendly senior citizens are commonly the victims of a scam. They are more easily convinced to buy fake prescription drugs, anti-aging products, healthcare and insurance plans.

Financial Statement and Reporting Fraud

This type of financial fraud is a deliberate misrepresentation, misstatement or omission of financial statement data. The criminals do this for the purpose of misleading the reader and creating a false impression of an organization’s financial strength. Public and private businesses commit this fraud to secure investor interest or to obtain bank approvals for financing. Financial statement fraud falls into the following categories:

  • Improper Revenue Recognition: Schemes to manipulate revenue figures happens when a company posts sales before they are made or prior to payment.
  • Manipulating Expenses: This type of fraud is an improper method to delay recognition of the expenses and artificially raise the income figures.
  • Improper Disclosures: This is commonly based on misrepresentation of the company and making false claims in press releases and company filings.
  • Overstating Assets: This is used to inflate company assets.

Financial statement fraud is very common in private companies, mostly committed by people in upper management. It can be devastating to an organization and the morale of the employees who have dedicated much of their lives to it. Spotting red flags about this type of financial fraud can be difficult because the businesses that engage in these activities attempt to portray the image of financial stability.

Do Not Become a Victim

Here are the steps to take to protect yourself and others from financial fraud:

  • Know the common scams and warning signs.
  • Keep personal information secure.
  • Change your passwords and PINs frequently.
  • Keep tabs on your credit reports.
  • Shred documents.
  • Keep tabs on your bank transactions.
  • Talk to loved ones about fraud.
  • Report fraud.

Fraud can happen to anyone, anywhere. It does not discriminate. Chances are, you have probably come in contact with a scam of some sort before. Avoid becoming a victim, and report the activity.

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