10 COMMON TYPES OF FRAUD – AND HOW TO AVOID THEM
We usually enjoy being fooled. We pay magicians to delight us with startling illusions. We demand filmmakers impress us with increasingly realistic special effects. We’re delighted when someone throws us a surprise birthday party.
But when we’re fooled into buying a product that’s never delivered, invest in a company that doesn’t exist or enter our credit card information on a phony website, that’s not fun at all. In fact, that’s fraud. It’s a crime. And, together, it costs us billions of dollars every year.
Here are 10 common types of fraud you’re apt to encounter on any given day and ways to avoid them.
1. Phony Checks. This is a simple and easy fraud. Someone pays you with a check when there’s actually little or no money in the account. To protect yourself, never take a check that doesn’t include an address and confirm both the name and address against the buyer’s driver’s license. That way, if the check does bounce, you know who to pursue.
2. Phony Internet Sellers. While surfing the Net, you’re liable to run across items (often name brand watches, jewelry or electronics) being offered at ridiculously low prices. Many of these sellers are phony; they’ll take your money, but never deliver the item. Always check user reviews and ratings before buying online.
3. Online Misrepresentation. This is a subtler form of fraud in which the seller offers a so-called high-value item at a steep discount price. Often, such items aren’t worth nearly what the seller says they are. Before buying, do an apples-to-apples comparison by checking what other sellers are listing the same item for on the Internet. If you can’t find the item anywhere else, chances are it’s a scam.
4. Website Misdirection. Even buying from a top retailer like Amazon.com or Overstock.com can be dangerous. No, those companies aren’t crooked, but sophisticated hackers have found ways to mimic these companies’ checkout pages so when you go to pay for your purchase, you’re actually giving your credit card information to someone else. Whenever you reach a checkout page, check the website address at the top of your web browser. Make sure it matches that of the original site and doesn’t contain an odd country extension like “.ru,” which means “Russia.”
5. Charities Fraud. Americans enjoy giving to worthy causes, which is something con artists are eager to take advantage of. Especially around the holidays, you’re apt to get emails or phone solicitations asking you to donate to any number of charities. Some may be legitimate. Many others are not. If you want to give to a charity, never respond to a solicitation. Choose the charity for yourself and donate directly.
6. Debt Elimination. Many Americans are in debt. Some seriously so. If you’re in such a situation, you may be tempted by ads by companies that promise to negotiate with banks and credit card companies on your behalf so you can zero your debt for just pennies on the dollar. Many of these scams ask for partial payment up front – often $1,500 to $2,000 – as well as all your credit card information. They’re bogus. And, in the end, you’re not only out $1,500 to $2,000, but you’ve also given away all your credit card information, which the scammers are now free to use.
7. Work-at-Home Scams. Millions of Americans now telecommute, so the idea of working from home sounds viable. But most of the ads that say you can “Make $25 to $200 working at home!” are frauds, especially if the company behind them asks you to pay to join their program. At best, you’ll be hired to get other people involved in the scam.
8. Pyramid Schemes. Frequently disguised as “multilevel marketing programs,” these schemes promise you high returns on your investment if you can recruit other people to work as your marketing network. Of course, they only way they can make money is if they recruit other people to become part of their marketing networks, etc. The way such programs evade the law is by making it possible to make money by selling actual products or services, but their real focus is the financial pyramid, which only serves the people at the very top. The best and only way to protect yourself is just to avoid them.
9. Online Pharmacy Frauds. On any given day, you will likely receive numerous spam emails advertising any number of prescription drugs at low prices through online pharmacies. Many of these pharmacies are scams that sell counterfeit or expired drugs that have been relabeled to look legitimate. At best, you’re just buying harmless sugar pills. At worst, the drugs could cause real harm. There are legitimate online pharmacies on the Internet, but again, investigate them thoroughly before sending them your money.
10. Identity Theft. The fastest-growing type of fraud in the world is identity theft. It occurs when the fraudster uses your credit card or bank account information to buy items and then charge them to you. The simplest way to protect yourself is to destroy receipts, bank card statements, credit card bills, etc., before throwing them in the trash.
The
impact fraud can have on an organization can be monumental. Not only can it have a significant financial impact, but, depending on the type and severity, it can also destroy an organization. While there are many types of fraud, there are a select few that can cause the most damage.
Financial statement fraud.
Although it’s less common, financial statement fraud can be the most damaging to a company. Overstating revenue, earnings and assets – along with understating liabilities (or just plain concealing them) are the most common activities found with this type of fraud. Enron and WorldComm are two semi-recent, high-profile cases involving financial statement fraud.
Asset misappropriation.
Some of the more common types of fraud fall into the category of asset misappropriation, which closely-held businesses are most susceptible to.
Skimming of cash and cash larceny.
This type of asset misappropriation consists of taking cash before it even enters the company’s accounting system. It’s very hard to uncover (since it requires finding evidence of something that hasn’t been recorded yet) and it doesn’t require a lot of sophistication to execute, making it a popular choice among those that commit fraud. Check tampering, accounts receivable skimming, fake billing schemes, payroll schemes, fake or duplicate expense reimbursement schemes and inventory schemes are also other common examples of asset misappropriation.
Misuse of company assets.
Another common type of asset misappropriation is the misuse of company assets. Not only is it problematic since it’s the unauthorized use of company assets, but it can also open up the company to significant liability.
Theft of intellectual property and trade secrets.
As our world becomes increasingly driven by information and technology, an increase in the theft of intellectual property and trade secrets is on the rise.
Healthcare, insurance and banking.
Healthcare, insurance and banking are all industries that have billions of dollars flowing through their systems, making them prime targets for this type of fraudulent activity. Bogus health insurance claims, business insurance claims, and fraudulent bankruptcies are all ways individuals commit this type of fraud.
Consumer fraud.
Individuals targeted through cons, bogus telemarketing, email, Ponzi schemes, phishing,
ID theft and other schemes, are all victims of consumer fraud. Whether it’s an organization system breach or bogus tax returns filed for large refunds, consumer fraud is on the rise. Companies can also be victims of
email phishing scams – especially spear phishing, which involves sending targeted, disguised emails that contain malicious links.
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