Financial Fraud Types and Prevention Techniques

Haseeb Awan
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April 5, 2023
Modified On
April 5, 2023

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Scams cost Americans $56 billion last year, and credit card fraud made up a large chunk of that. With criminals becoming more sophisticated, it's difficult to know how to protect ourselves. According to research, most of us believe we could do more to safeguard our identities online.

Most people are aware of the dangers of online scams, but many still fall victim to them. Scammers are getting smarter and more sophisticated, so you must be smarter to avoid scams.

Financial frauds cost Americans millions of dollars every year. Criminals are always coming up with new methods to steal your money or withdraw funds from you. Get the information you need to defend yourself against these frauds.

Misleading, deceptive, or other illegal methods are used to deprive you of your money or otherwise endanger your financial health. This may be achieved in various ways, including identity theft and investment fraud.

What is Financial Fraud? 

The money you lose to fraud or fraudulent schemes is typically not covered by victim compensation programs. Check with your attorney to see whether your state has any special rules on victim compensation. Only civil justice might provide a route to retrieving lost funds.

Why Is It Important to Be Aware of Financial Fraud?

If you are the victim of financial fraud, you must take action quickly by notifying law enforcement and other appropriate authorities. You should also dispute or reverse fraudulent charges as soon as possible and keep records of everything related to the crime, such as bank statements, tax forms, or credit reports from current and previous years (or any other important information).

8 Types Of Financial Frauds and Their Prevention Techniques

If you've seen television commercials promoting people getting defrauded by identity theft, typically without intending to, then you're probably familiar with financial fraud. When money or other assets are taken from you through deceit or other types of criminal activity, it's known as financial fraud. According to the most recent figures, millions of Americans were victims of financial fraud last year.

Identity theft is just a variety of financial frauds types that may occur; therefore, it's critical to be aware of different types of financial fraud and how to combat them. Here are some prevalent kinds of financial fraud and the measures you can take to avoid them today.

1. Identity Theft 

Identity theft is the illegal acquisition of someone else's personal information, usually in the form of a username and password, to assume their identity. This data might include names, social security numbers, and debit or credit card numbers. Identity thieves may illegally use your information to obtain loans or engage in other illicit activities without your consent. They could also utilize it to establish lines of credit or receive medical care through insurance providers you're paying for via credit cards or lines of credit.

How To Protect Against Identity Theft?

Although it may appear that you can't avoid identity theft, there are things you can do to prevent your information from being stolen. Sharing intimate details, such as your date of birth or social security number, is a no-no. Collect your mail daily and use strong passwords on all online accounts. Furthermore, avoid handling personal business such as paying bills on open Wi-Fi networks.

2. Investment Fraud

Making false, deceptive, or fraudulent statements about investments or securities. This might be the case of making/omitting critical information and insider trading recommendations, among other things.

Examples of Investment Fraud:

Pump and dumps are fraudulent schemes in which stock traders or brokers purchase a stock at a low price and entice other investors to buy the same security to boost its value. Those who bought the stock at a low price then sold their shares and profited from the transaction.

Ponzi schemes are investment fraud in which returns are paid using new money from freshly recruited investors rather than interest and profits from legitimate investments.

Securities fraud is called misrepresenting a business or real estate opportunity investment by providing bad, inaccurate, or false information. Omitting or hiding important information related to an investment decision is also considered investment fraud.

How To Protect Against Investment Fraud?

The most effective protection against investment fraud is to be an informed investor. Know what you are investing in and why you are investing. Do not take tips from strangers or people you do not know and trust, especially unsolicited tips. Also, do not let anyone pressure you into making an investment decision. Take your time, research, and seek professional advice if you have any doubts.

3. Embezzlement

A less frequently talked about the type of financial fraud is embezzlement. Here, the scammer steals property or money they've been entrusted with for personal use. An example of embezzlement would be if someone had access to another person's finances at work but didn't have legal ownership over them and took some of that money for themselves. This serious issue is often grouped with other forms of property theft.

How To Protect Against Embezzlement?

Conduct a complete background check, restrict access to money and financial resources, and have a zero-tolerance policy for any act of theft. Pay attention to your finances and keep close track of your money. This includes knowing where your money is, how it's being used, and who has access to it. If you have someone managing your finances, choose someone you trust and who has a good reputation. It's also important to stay involved in your finances and regularly check in on what's happening. Be aware of the signs of embezzlement. These can include sudden changes in lifestyle, unexplained absences, secretive behavior, and financial problems. If you suspect embezzlement, take action immediately. This includes contacting law enforcement, your bank, and/or a lawyer.

4. Mail Fraud

Mail fraud is any scheme to harm or defraud someone through the mail using false pretences or promises.

Some common mail fraud includes: 

  1. Ponzi schemes 
  2. Pyramid schemes 
  3. Investment scams 
  4. Identity theft 
  5. Advance fee scams (e.g., Nigerian prince scams) 
  6. Fake lotteries/sweepstakes chain letters/mass mailings. 
  7. Mail

How To Protect Against Mail Fraud?

The most effective prevention against mail fraud is to be proactive and check the validity of a letter before responding. If a number appears on what looks like an official piece of correspondence, verify that it's the real company's number rather than a fake one.

It's always best to hand-deliver any letters containing personal information like your Social Security number or bank account number. And when you're going on vacation, don't let your mail pile up! Be sure to either disable your mailbox or have a neighbor collect it for you while you're away.

5. Tax Fraud

Tax fraud describes the act of deliberately providing false information on your taxes to reduce what you owe the government. This is considered cheating because it prevents people from paying their full share of taxes. Some common examples of tax fraud include claiming false deductions (such as personal expenses classified as business expenses) and not reporting income.

How To Protect Against Tax Fraud?

You should avoid tax fraud because it is illegal and because criminals are more likely to commit identity theft during tax season by stealing tax documents. To reduce your risk, you can file your taxes early and securely - for example, using a safe internet portal or going through a trusted accountant. Being detailed and organized with your finances by saving receipts and other documentation will help you file your taxes accurately and protect yourself from any potential tax fraud allegations.

6. Driver's License Fraud

A driver's license is required for various purposes, including flying, opening a bank account, and driving! So it should be no surprise that people seek to steal driver's licenses to enable them to perform all of these activities under someone else's name.

If a fake driver's license is issued in your name, they may commit traffic infractions and more serious offences that will reflect poorly on you. If the imposter resides in your state, YOU could have difficulties renewing YOUR own license.

How To Protect Against Driver's License Fraud?

There are a few things you can do to help protect against driver's license fraud:

  1. Check your state's requirements for obtaining a driver's license. Make sure you have all the required documentation before beginning the application process.
  2. Be aware of the different types of driver's license fraud. This can help you spot it if it happens to you.
  3. Keep your driver's license information safe and secure. Be careful who you share it with, and ensure you know where it is at all times.
  4. Report any suspicious activity or potential fraud to the authorities immediately.

7. Credit Card Fraud

Unfortunately, credit and debit card fraud is becoming one of the more prevalent types of financial crime in our increasingly digital world. This happens when an individual uses someone else's credit or debit card without permission. Debit or credit card numbers can be easily obtained through unprotected internet connections or physically stealing someone's cards.

How To Protect Against Credit Card Fraud?

  1. Check your credit card statements regularly and immediately report any suspicious activity to your bank.
  2. Never give your credit card number or personal information to anyone who calls or emails you.
  3. If shopping online, ensure the website is secure before entering your credit card information. Look for a URL with https:// and a padlock icon.
  4. Keep your credit card safe where you can see it, such as in your wallet or purse, and never leave it unattended in a public place.
  5. Using public Wi-Fi networks to make online purchases or conduct other financial transactions. These networks are often not secure and can be easy targets for hackers.

8. Online Fraud

As the name implies, internet fraudsters use the web to take advantage of others through deceit. This term is broadly used to describe any kind of fraud that happens on the internet, including auction fraud (like bidding on an item and never receiving it), phishing schemes (fraudulent emails that try to get you to input your personal information on a fake website), and romance scams (being scammed by someone you met online).

They typically commit these crimes through malware, email account compromise (EAC), data breaches, and phishing scams. Sadly, billions are stolen from honest people online each year.

How To Protect Against Online Fraud?

There are a few things you can do to protect against online fraud, including:

  1. Keeping your computer and software up to date
  2. Using strong passwords and changing them regularly
  3. Being careful about what personal information you share online
  4. Avoiding clicking on links or opening attachments from unknown sources
  5. Keeping an eye out for unusual activity on your accounts

If you think you may have been a victim of online fraud, you should immediately report it to the proper authorities.

Tips to Protect Against Financial Frauds

Being scammed out of your hard-earned money is unnerving, but there are thankfully many ways you can prevent it from happening. Following these tips can help reduce your chances of being scammed.

  • Keep a close eye on your accounts. You can quickly catch unauthorized charges by frequently checking your credit card and banking statements. Consider monitoring your online or mobile banking accounts daily to help prevent fraud.
  • Change your account passwords. On vital accounts, change your passwords regularly and ensure you don't use the same password for multiple accounts.
  • Confirm all financial transactions. Avoid common scams like phishing, in which scammers pretend to be a bank and ask you to change or confirm your account information. Always contact your bank directly to verify that your personal information is secure. Remember, the IRS will never contact you via social media, email, or text to ask for personal or financial information.
  • Online transactions should be done with care. Always use a secure internet connection while shopping, and avoid public Wi-Fi.
  • Do not solely depend on references and work history when extending your staff. Instead, opt for a more holistic approach that involves conducting background checks.
  • It's important to check your credit reports at least once a year. This way, you can ensure that all the information is accurate and up-to-date. You can get your free report from each year, but be careful of sites that may charge fees even though they look similar to
  • Check your credit. You may also want to sign up for a credit monitoring service, which immediately notifies you of any changes to your credit history or accounts. This might assist you in detecting suspicious inquiries or identity theft.
  • Get rid of old documents the right way. If you're throwing away bank statements or any other papers with private information like account numbers, personal identification numbers, Social Security numbers, etc., shred them before getting rid of them.
  • To minimize the number of spam calls you receive on your phone, add all of your trusted contacts to your phone. When you get a call, check the caller ID to determine whether it's someone you know. If you don't recognize the number and don't want to answer, do not pick up; they will leave a message if necessary. You may also try out anti-spam apps for your smartphone or contact your mobile provider about any methods available to eliminate unwanted calls.
  • Make copies of everything in your wallet today to help prevent financial frauds. If you have copies of the front and back of all ID cards and credit cards stored safely, you'll be able to access account numbers and customer service lines quickly if needed.
  • Scammers are experts at breaking down computer security. A strong firewall might assist protect your company's data, and antivirus software may help identify financial data breaches early on. There are several well-known cyber-security companies to select from. Decide which product best meets your needs by comparing different solutions.

What Should You Do If You've Been A Victim of Financial Fraud?

If you believe your personal information has been compromised, the first step is to call your bank. They will be able to tell you what precautions to take moving forward. You must monitor your accounts closely; as soon as any fraudulent activity appears, report it immediately by contacting your financial institution (using the number on the back of your card). Your bank will then freeze the card to thwart future illegal transactions and refund you ASAP after verifying everything internally. The IRS will also examine this case of fraud. You may also contact the police or go to your local police station to report bank fraud.

If you have been the victim of fraud, you should report it to the police and your bank or credit card company as soon as possible. You should also keep all documentation and evidence related to the fraud, as this may be helpful in pursuing legal action. If you have been the victim of online fraud, you may also want to contact your local FBI office or the Internet Crime Complaint Center.

Nobody is immune to falling into such a trap, but these suggestions can help you avoid many headaches and significant financial losses.

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Haseeb Awan
CEO, Efani Secure Mobile

I founded Efani after being Sim Swapped 4 times. I am an experienced CEO with a demonstrated history of working in the crypto and cybersecurity industry. I provide Secure Mobile Service for influential people to protect them against SIM Swaps, eavesdropping, location tracking, and other mobile security threats. I've been covered in New York Times, The Wall Street Journal, Mashable, Hulu, Nasdaq, Netflix, Techcrunch, Coindesk, etc. Contact me at 855-55-EFANI or for a confidential assessment to see if we're the right fit!

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