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Protecting Yourself From Fraud

Various, lengthy definitions of "fraud" can be found in many places, e.g., law dictionaries, literature for Certified Fraud Examiners, guidance for Certified Public Accountants and so on. However, if you are not a lawyer, a Certified Fraud Examiner (CFE), or a CPA, you may be looking for simpler ways to recognize fraud.  Jeff Long, a CFE and principal with Rippe & Kingston, shares a basic list of ways to protect yourself against fraud.

In basic terms, fraud is the intentional or deliberate taking of another's possessions (usually property or money, but, identity is also in the press these days) using trickery, deception or other unfair means.

If you are experiencing fraud or have been a victim in the past, at least one of your possessions must be missing. The first step to detecting fraud is knowing what and where your possessions are, both personal and business. For example, businesses have financial statements with underlying general ledgers, sub ledgers, registers, source documents, and varying degrees of internal controls to help management know what is owned and whether the assets are properly safeguarded.

Once you have a good sense of what you own and where it is kept, you can recognize if something is being taken from you without your knowledge. There are many conditions to look for and there are many comprehensive checklists that specify such considerations. The purpose of this article is not to delve in to that degree of detail, but to give you a critical few items to think about:

Whistle Blower -- To use an old phrase: "keep an ear to the track". People want to tell you when they see bad things happening, especially if they are not benefitting from it but might gain by telling you. Anonymous, or maybe not so anonymous, tips are credited for surfacing many fraudulent transactions. Tattle telling, or whistle blowing, will happen if given the chance. Take steps to ensure people have a way to communicate with you; develop a way for asking people what they know.

Disappointment -- Understand the give/get or cost/benefit you expect from the decisions you make and frequently reconcile your expectation with reality. If your expectation and reality are significantly different, causing disappointment, then consider the possibility of having been tricked or deceived in to giving up something you possess for no identifiable return on your investment.

Something Unusual -- Whether personal or business related, look at your bank accounts, corresponding bank reconciliations, credit card statements and loan statements regularly (i.e. at least monthly). If you see anything on these documents that you are not familiar with or do not understand, then inquire with skepticism. If you have authorized someone else to review these items on your behalf, do not underestimate the risk in doing so. It should not be a surprise to learn that many frauds are perpetrated by trusted individuals. The sad truth is that it is simple for these people to access your possessions and you are more easily deceived by them than by someone you expect would harm you. The perception of detection is the best deterrent. Keeping an honest person honest is simply a matter of showing them you are attentive to what they are doing. They don't need to know what you are looking at, only that you are regularly looking.

Unexpected Correspondence -- Fraudsters frequently prey on victims by creating a sense of urgency or emergency. Schemers try to use names and connections familiar to you, enticing you to divulge confidential information that you would not normally share. Bottom line, do not share confidential information unless you initiated the communication and you are certain the person you have contacted is authorized to address your situation.

Gut Feeling -- If it seems too good to be true then it probably is. Instinct and intuition are human qualities that should not be ignored. Many fraud schemes that unravel and become documented cause others to think "What were the victims thinking?  Where was their common sense?" or "If they are that dense, then they deserved to be duped." Greed, laziness, or dependence on another makes you susceptible to fraud and such conditions may result in unfavorable outcomes. However, following instinct, intuition, and common sense may help you avoid the disappointment of being a fraud victim.

There are many fraud schemes that may come to haunt you. Each scheme generally has a list of warning signs and/or red flags. Experts have created these lists to help spot similar haunting experiences before the schemes cause serious damage or to prevent schemes from escalating. Since it is not always possible to have a written checklist in front of you at decision time, the problem becomes remembering the indicators when they are most needed. The five items above apply globally to fraud situations and I hope you find them easy to remember and applicable to your daily routine.

In closing, if you believe you are a victim of fraud there may be a chance for recovery. Contact a lawyer who specializes in fraud cases, a Certified Fraud Examiner, and/or a Certified Public Accountant as soon as possible.  They can help guide you in your next steps.