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Finance glossary

What is fraud?

Bristol James
5 Min

When you look up ‘fraud’ in a dictionary, you’ll read that it’s an intentional action to deceive a victim. In the case of financial fraud, the perpetrator receives a financial gain or another dishonest advantage.

Over the years, fraudulent activity has become increasingly sophisticated. Identity theft, tax fraud, money laundering, insider trading, investment fraud, bank fraud, foreign exchange fraud – these are just a few examples of popular finance schemes you should watch out for.

Types of financial fraud

Fraud stories in the news often sound unbelievable – why would anyone willingly give away their data? But fraud nowadays is much more complex than that. Even the most experienced individuals can become victims of unlawful actions. This can happen due to their lack of knowledge or the smart strategies of perpetrators.

As we’ve become more reliant on computers and the internet, it’s become easier for new fraud schemes to arise. While it’s impossible to list them all, here’s a look at some of the most common types of financial fraud.

Identity theft

When you think about fraud, the first thing that typically comes to mind is identity theft. In this scenario, the thief uses your personal information, for instance, your birthday, your name, or your Tax File Number, to get access to your assets. During the process, the fraudster may drain your bank account, spend out your credit card, and even receive new loans.

Did you know that the average victim of identity fraud scams lost around 1660 AUD (1100 USD)? And what’s worse is that this number has only increased over the years.

Tax fraud

If you’re a business owner, you should beware of tax refund fraud, which often goes hand in hand with identity theft. This happens when another individual completes a false tax return for your company and asks for a refund. Upon mistake, the IRS may then send the money to the fraudster, thinking it is you.

Money laundering

Money laundering is exactly what its name states. Illegal money is used in a series of transactions through different banks (often foreign) and companies to make it legal. In the process, the money’s origin becomes hidden, which makes it difficult for authorities to trace illegal activities related to it, for example, corruption and drug trafficking.

Insider trading or securities fraud

Fraudulent activities can also occur through insider trading. The process involves trading stocks or securities using non-public information. As a result, the integrity of financial markets is affected, and other investors are put in a disadvantageous situation.

Investment fraud

‘Get rich quick’ schemes sound tempting, but in most scenarios, they’re nothing more than that – a scheme. Investment fraud targets individuals with fake promises of large gains and little risk. A perfect example of this is predatory structures like Ponzi schemes, but sometimes investment fraud works in a much more simple way. The victim gives their money and the thief disappears with all of it.

Bank fraud

Lastly, bank fraud can occur in many different forms. Sometimes, it can happen through simple check fraud; in other cases, it involves complex schemes such as money laundering.

As you’ll read on the news, most often, bank fraud involves loan scams, counterfeiting, phishing (wire fraud), check fraud, and previously mentioned identity theft. According to the Australian Payment Fraud Report, credit card fraud has significantly increased in recent years.

Prevention of financial fraud

Data and reports clearly show – criminals are now even more advanced and aggressive. That’s why it’s more important than ever to know how to protect yourself and your finances from fraudsters.

According to the Australian Bureau of Statistics, around 1.7 million individuals in our country have been victims of credit card fraud. So, how can you avoid becoming a part of this number?

Monitor your bank accounts and credit reports

To prevent financial fraud, you should always keep your finger on the pulse. Regularly check everything that’s happening in your bank accounts and credit reports. This is especially important for credit card fraud. Make sure to check for any suspicious activity, like failed attempts to log in.

It’s a time-consuming task, sure. But keep in mind that fraud monitoring systems can only help after the fraudster has access to your account. If you manually do the reviews, you can prevent it from happening altogether.

Use strong passwords

Coming up with a strong password for every site and platform you use can give you a headache. But it really is as important as they say. In fact, it makes a much bigger difference than changing it regularly.

Fraud-prevention specialists advise using long, complex passwords (something other than your birthday). You can even try passphrases to protect yourself from thieves, scammers, and credit card fraud.

Avoid unsecured Wi-Fi

Unsecured (unencrypted) Wi-Fi connections are an open invitation to fraudsters. For hackers, getting your login credentials and your account data through an unsecured network is a piece of cake. That’s why you should never rely on public Wi-Fi and only use networks you are sure of.

Research companies and financial advisors

Is your financial advisor really your friend? A little skepticism goes a long way when building relationships with other companies and individuals.

Before you share any valuable information with another business, make sure to check their background. This also applies to your own employees. Sometimes, attacks can come from within your own company.

Invest in fraud protection technology

To avoid becoming a victim of fraudulent activities, you should consider investing in fraud protection technology.

Did you know that most financial fraud occurs when trading with suppliers? Using technologies like Eftsure takes away the endless time spent trying to fact-check every invoice and account number. By simply plugging the account details in, our software will tell you if the account is correct, or if it might require further investigation. We’ve helped thousand companies stop falsified invoices or cyber threats dead in their tracks.

In summary:

  • Financial fraud can happen in many different ways and forms. Identity theft, tax fraud, money laundering, insider trading, investment fraud, bank fraud – these are a couple of examples.
  • The number of financial fraud victims is growing. In Australia alone, an estimated 8,1% had experienced card fraud.
  • To avoid becoming victims of financial fraud, individuals and businesses must take preventive steps. This includes monitoring activity in bank accounts, checking your credit reports, using strong passwords, staying clear of unscripted Wi-Fi, researching other companies, and investing in fraud protection technology, like Eftsure.

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