In 2022 alone, a PWC study found that 51% of surveyed organizations experienced fraud in the last two years of their operations. This number is alarming as it implies that your company may easily be at risk of the looming threat of cybercriminals.
Aside from the internal impacts these attacks can cause to your organization, fraud also affects investor confidence and compromises your clients’ accounts. In the case of the United States, it’s estimated that Americans alone lost $3.56 billion to online fraud in just the first two quarters of 2022.
Establishing comprehensive measures against financial fraud will ultimately avoid these attacks and mitigate their impacts. It starts with understanding financial fraud and the basics of fraudulent attacks and security measures, then extending this knowledge to your clients and employees.
What is Financial Fraud
Financial fraud occurs when an individual gains illegal access to the money and properties of another person or organization. This unlawful access harms the financial resources of the victim for the benefit of the person who acquired the illegal access.
The Most Common Types of Financial Fraud
1. Embezzlement
Embezzlement, also often considered property theft, refers to financial fraud involving an individual’s unlawful breach of trust, power, and access to a financial source for their gain.
For instance, a person entrusted with legal access to an organization or another individual’s money, property, or other assets, but doesn’t legally own it, steals those resources for personal use.
Embezzlement may also occur when an individual exploits a company credit card. In addition, dismissing lost or damaged items to steal or intentionally making unfavorable decisions involving company resources may fall under this type of fraud.
Losses from employee theft, embezzlement, and misuse of funds total an average of $50 billion annually. Besides the financial loss, this is also an emotionally devastating crime.
2. Identity fraud or identity theft
Identity theft or fraud is one of the most well-known types of financial fraud. This crime happens when someone illegally uses another person’s identifying information to access their financial resources.
Personal information typically targeted for identity theft includes names, credit card numbers, and social security numbers. In 2020, Americans lost $56 billion to identity theft cases.
Buying personal information from the dark web is the easiest way these fraudsters get to your client’s accounts. They can pose as a bank representative and send phishing attacks telling your clients to install malware that steals their logins and passwords. Once a fraudster gets access to information, they drain the victim’s bank account or max out their credit card.
A friend or relative of your client can also open a credit card in your client’s name without them knowing.
3. Credit card fraud
Credit card fraud is the unauthorized use of someone else’s credit or debit card once a fraudster gains access to the victim’s bank details.
Fraudsters take numerous ways to get your clients’ card details. They hack your client’s devices and get their card details through unsecured internet connections or phishing attacks. These frauds can also create a clone of your client’s physical card using their credit card numbers.
These fraudsters may even go to the extra length of stealing your clients’ physical cards, the second most reported type of fraud in the first quarter of 2022.
4. Insurance fraud
Insurance fraud happens in several ways, and both insurance agents and clients can commit this crime.
For instance, an unauthorized person claims someone else’s insurance benefit, or an insurer may intentionally deny claimant benefits or sell policies from illegitimate companies.
Insurance policy buyers can also submit false medical reports, such as history, illness, kidnapping, or death.
5. Tax fraud
A taxpayer or a fraudster may commit tax fraud. A taxpayer may purposely submit incorrect tax returns to reduce their tax rates or claim false deductions by classifying personal expenses under business expenses. They may also choose not to report all their income sources.
Meanwhile, criminals can file tax returns in someone else’s name. They typically report incorrect income to maximize the refund they deposit to their accounts. In 2020, the IRS initially reviewed 5.2 million cases of tax returns for possible fraudulent activities.
6. Advance fee fraud
An advance-fee fraud convinces individuals to send money in exchange for promised payments, products, or services that are of larger value than the initial amount sent. Eventually, fraudsters disappear once they receive the money sent.
7. Investment fraud
Investment fraud is another common type of financial fraud that your clients may fall into. These fraudsters ask people to invest in a scheme that promises to generate large sums of interest and earnings.
Fraudsters operating on these schemes either disappear right after receiving the amount from oblivious investors or file for bankruptcy, deeming all invested money dissolved.
8. Fraudulent charities
Never let your client’s intention to help be a way for them to get scammed. Fraudulent charities, as the name suggests, are illegitimate organizations that generate donations from people and suddenly disappear once they have collected large sums of money.
These are just eight of the many fraudulent schemes that your organization and clients are vulnerable to. Protecting your clients from these attacks is crucial, especially those between 18 and 59, who were reported in 2021 to be 34% more susceptible to fraud cases than older people.
How to Keep Your Clients Safe from Financial Fraud
1. Be on the constant lookout for traditional and emerging schemes
You must know the traditional and emerging types of fraud in banking, healthcare, or other industry you are operating in.
As security measures become more sophisticated, so do fraudsters and their methods of committing these crimes. For instance, perpetrators use deepfake technology to target your clients. Make sure you’re familiar with their warning signs and who they usually target.
2. Orient your clients and employees about phishing and fraudulent attacks
Extend your knowledge against fraud to your clients and employees and emphasize that fraudsters take advantage of small details that people often ignore or mislook. These small details include receiving new emails with phishing attacks from people or institutions posing as trusted representatives from your client and employees’ provider.
For a better picture, phishing was the most reported fraud scheme during the first quarter of 2022, and the best way to address this is to teach your clients and employees to always be aware of the best practices against phishing. Include frequent reminders on the materials you distribute, such as emails with reminders saying, “Think before you click!”
3. Designate specific people to review your clients’ accounts manually
Doing manual reviews of countless client accounts is time-consuming. However, it’s a way to monitor any suspicious activity that can be easily overlooked or doesn’t trigger any alarms.
A designated individual from your organization should be looking for suspicious activities in your clients’ accounts, such as several failed login attempts and other unusual activities that might signal different types of fraud in banking.
4. Alert customers proactively
Immediately alert your customers when there is suspicious activity in their accounts. Also, encourage them to promptly report any suspicious activity they notice or encounter in their accounts. Be proactive in offering alerts for your customers whenever a purchase is charged to their card.
5. Beware of internal fraud
As much as you prepare for external fraudulent acts, you must also ensure protective measures against attacks from your organization. Aside from doing background checks on new employees, ensure that your system inhibits any unauthorized access, even from your team members.
6. Use multi-factor authentication and strong account passwords
Multi-factor authentication allows your employees to access general information for their daily tasks while requiring further authentication for sensitive information.
Advise your clients and employees to use strong passwords. Discourage frequent changing of passwords as people tend to write down their passwords. These physical copies may increase their risk of fraudulent attacks.
7. Invest in identity management solutions
One of the best ways to protect your clients from fraud in banking is to integrate reliable security systems and identity management solutions. These systems must cover all aspects of your operations, including your clients’ apps.
Part of establishing these protective systems for your operations is conducting penetration tests to ensure that your system sustains different attack types from fraudsters and hackers.
Know Your Risks!
As cases of financial fraud increase, learning the different types of fraud helps you anticipate any attack against your organization and your clients. It allows you to make the necessary steps to ensure your organization’s and your client’s safety. These steps include choosing the best security system to integrate into your organization’s operations.
Take note that you and your organization are crucial in securing your client’s financial resources and security aside from providing excellent financial management and customer experience.
Therefore, investing in an excellent security system is a must for your organization. Q5id provides expert systems from some of the world’s leading identity, security, and technology companies. Talk to one of our experts and get your organization secured today.
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