Financial Fraud 101

Most of us maintain steady jobs, save our money, invest wisely when we can, and work hard to protect our finances and our futures. We balance our checkbooks, keep ledgers and accounts of what we owe, and maintain healthy credit while checking our scores and paying off our cards and our bills.

But within these normal processes lurks another possibility: fraud.

Some people don’t do the same things we do, preferring instead to make money in unscrupulous and illegal ways. Financial fraud is a common problem affecting millions of people around the world, and to various levels. When you pay your bills, use your credit cards, sign into devices and give information, you are putting yourself at the mercy of the financial world and its bad actors.

The scope of the problem is immense: in 2020, American consumers lost $56 billion to identity fraud. In 2019, fraud cost the US economy over $5 trillion. This is a lot of money changing hands without permission. Scammers are devoted, diligent, and often very clever in their tactics. They use a variety of methods and are often tireless in their efforts. So how do they do it? What are their methods and how do we detect them?

Fraud comes in many, many different forms. One of the most common—and most discussed—is elder fraud. Millions of elderly Americans are scammed out of their money and fall victim to criminals preying on their mental or medical status. For example, scammers might pose as romantic partners and get the victim to sign over money or give bank and personal financial information. They might pose as government employees or repairmen and convince the victim they need to pay a bill or have an issue fixed, where money changes hands. They might send phony bills or pose as relatives needing money. Often the victims are none the wiser, and they can be robbed of their desperately needed lifesavings.

For those with elderly relatives, such as grandparents, it’s important to help them manage their affairs or secure someone to manage their affairs for them whom you trust. Speak with them regularly and note any changes or inconsistencies in payments and records. Report anything suspicious as soon as you detect it.

Credit or debit card fraud is another incredibly common form of financial fraud. For example, criminals might get ahold of your credit card information and make unauthorized purchases, hoping you either don’t notice or notice late enough that they make off with the purchases but are never found or billed. Having your card information stolen and illegally used usually shows up on financial or bank statements as purchases you don’t recognize in places you’ve not been to recently. Many banks now use machine learning and AI to detect unusual activity on cards and automatically halt it, but scammers still make off with billions worth of loot each year and avoid detection until they act again.

A much bigger topic, and one that creeps up very commonly in different industries, is business fraud. Business fraud is any fraud involving illegal activities through or for a business or multiple businesses. It comes in many different forms and can involve billions of dollars, depending on the industry and the targets.

Other common forms of fraud are (but not limited to):

  • Identity theft
  • Holiday scams
  • Investment fraud
  • Internet auction fraud
  • Prescription drug fraud
  • Ponzi schemes
  • Pyramid schemes
  • Ransomware
  • Mortgage scams

Fraud pervades every industry to varying degrees. Thieves make off with billions every year, and many people are scammed without ever realizing it happened at all. Worse, many are aware but couldn’t notice the signs or defend themselves from it.

Detecting Fraud, Taking Action

For many people, bank statements and financial information are routine background processes that we don’t think a lot about. Some of us might even find the topic boring, and the idea of looking over financial statements and numbers can seem like a mind-numbing task that isn’t worth the effort.

But it always is.

Fraud can steal your lifesavings. It can rob you of your good credit score, your good name, and your financial future. It can seriously impede your ability to do the things you want in life, from buying a home to getting a loan or taking a trip or getting approved for a higher credit limit on a card. As a result, detecting fraud and stopping it before it gets out of control or does serious damage is key. For many people, fraud is a possibility they’re aware of—but they don’t know how to find it or what to do if they did.

Usually, the first way you detect fraud is irregular charges on your statements or your banking dashboard. You might also get notifications about your credit, changes to your information you didn’t make, strange calls or emails (sometimes from debt collectors), receiving merchandise or cards you didn’t request, and any kind of irregularities on your financial statements. If you don’t completely recognize it, investigate. And if you don’t recognize it at all, call your bank or the applicable institution immediately. Be on the lookout for strange texts, emails, or messages you receive. Scammers evolve with the times—you should, too.

  • Verify all information that is sent to you; call relevant institutions
  • If necessary, call the authorities
  • Call anyone else you know who might be effected affected by it
  • Secure related accounts and information; don’t let fraud spread

By remaining vigilant of signs and symptoms of fraud, you stay ahead of scammers before they can make off with your money. Early detection enables prevention, which is by far the easiest path to take. Never having the problem in the first place is much preferable to having to call every financial institution and bank you know to clear a situation up while fighting for your good name and financial future.

And, of course, fraud evolves.

Internet fraud and digital theft is increasingly common in our connected world. Hackers and thieves not only use ransomware, but keylogging software and malware to disrupt and harass your financial activities. It’s never been easier to have money stolen from unsecured nodes such as computers and personal devices. It’s important to keep yourself safe online no matter what you’re doing. A few key action items to keep in mind for your online presence include:

  • Change your passwords regularly
  • Make your passwords for financial institutions different and suitably complex. Do not use things like password or your name. Make it hard to guess
  • Run regular virus and malware checks, and use anti-virus software from trusted sources
  • Do not click links you don’t recognize or aren’t expecting
  • Never download files from emails or people you don’t know or aren’t expecting
  • Do not give your financial information out on untrusted or unverified sites
  • Enable two-factor authentication for your devices and logins
  • If it isn’t completely trusted, default to skepticism and don’t give out information

It can seem like a lot to stay ahead of scammers online, but with a few key steps in place it becomes second nature to protect yourself. It’s worth it to protect your financial future from scammers and bad actors at all costs.

Of course, you should also keep an eye out for letters, phone calls, and any other strange correspondence that doesn’t fit. Our financial information over several years tends to fall into a narrative. We have regular habits and patterns, and we shop at particular places and have largely consistent behaviors. Sudden, random deviations from these patterns are a key red flag that the system has changed. While not all changes are bad, the ones we don’t make that compromise our financial integrity and involve illegal actions should always be dealt with quickly.

Many of our institutions and organizations we trust have systems in place to help detect fraud and criminality—but they can’t find it all. We must remain vigilant to stay ahead of scammers and protect ourselves from their ever-evolving schemes. With a little bit of maintenance and some creativity, we can do the work that protects us for years to come.