Common Types Of Fraud

Michael Bennett
September 29, 2015 - 10853 Views

It is estimated that 30 million people in the United States every year are victims of fraud. However, only a fraction of them are ever aware of it and alert the authorities. The types of fraud they fall prey to is almost endless. As soon as one common type of fraud is identified and people know how to protect themselves from it, a new type appears. It is vital, therefore, that you always remain vigilant. Below are some of the most common types of fraud out there.

1. Telemarketing Fraud

Telemarketing fraud happens when you are basically asked to act now or send money straight away in order to be able to access some sort of special offer. This information will be given to you over the telephone and the telemarketers can be very convincing. If you have been cheated over the telephone, it is very difficult to get your money back. Hence, make sure you check who is calling you, ask for written copies of their terms and conditions, and look the company up before you send money and receive business information.

Every year, approximately $40 billion is lost to telemarketing fraud, according to a 2001 AARP study. More than 55% of these people are over the age of 50.

2. Nigerian Letter or “419” Fraud

Most people have received Nigerian letters or emails in the past. It is so common, in fact, that the Nigerian letter has received its own fraud name, which is 419 Fraud. Essentially, you will receive a letter that tries to convince you someone in a position of power (a general, FBI agent or even UN Secretary General Ban Ki Moon) has chosen you to help them access some money. They will ask you for money first, in order to pay for attorney services or bank charges for instance, with the guarantee that you will get it back once the money is paid out, with interest.

Losses to 419 scams are growing dramatically. In 2006, it was estimated that global losses to these scams were $3.8 billion. As of 2013, losses were estimated at $12.7 billion and rising.

In many cases, the letter will include a lot of details about what your money will be used for. Those who have fallen for the scam will generally receive subsequent letters asking for even more money for other unexpected costs. All of these will look very official, including proper letterheads and more. In reality, however, there is no money and victims are simply being bled dry. This violates section 419 of the Nigerian criminal code, which is where most of these scams originate from, and this is why it is called 419 fraud.

If you do receive such a letter or email, forward it to your local FBI, the US Postal Inspection Service, the US Secret Service, and your local law enforcement department. If received via email, you should never reply, not even with a sarcastic remark, as they may have attached some sort of malware to access your computer as well.

3. Identity Theft

Idenity theft is one of the fastest growing opportunistic crimes in our country, if not the world. A criminal will take your identity by looking through your trash or by taking details from you online and they will use this to apply for credit, welfare services, tax refunds, and more. A good identity thief can get your information through a wide variety of sources and it is almost impossible to totally prevent it from happening. However, there are things you can do to minimize the chances of a thief getting hold of your details, such as shredding your documents, checking your statements, not leaving your cards on display, and signing up to credit protection services.

The problem of identity theft is growing. The 2017 Identity Fraud Study determined that $16 billion was stolen from 15.5 million consumers in 2016.

4. Advance Fee Schemes

Advance fee schemes are highly complex schemes. Essentially, it means that you pay some money in advance for things like gifts, investments, contracts or loans, but you don’t receive anything back. Con artists come up with a variety of different ideas to con you out of this money. The smaller cons include asking you to pay a ‘finder’s fee’, with the guarantee that the item is of very high value. More worrisome are the larger cons, where you are asked to pay a fee so that a ‘broker’ can help you find a loan. Not only will they take the monetary value of the fee from you, they will also take all your personal details under the guise of finding you a loan. The loan, obviously, will never materialize, you are out of pocket and your identity is compromised. The best tip to avoid this type of scam is that if something sounds too good to be true, you can bet that it actually is. Additionally, if you are asked to pay for something like a finder’s fee, you should only agree to it if it is with someone you personally trust.

Advance fee scams are related to the aforementioned 419 scams. It is estimated that advance fee and 419 scams have stolen $82 billion US from people globally to date.

5. Health Care Fraud and Health Insurance Fraud

Health care fraud and health insurance fraud come in a variety of forms. These include:

  • Medical equipment fraud, where bills are created for equipment that was never received.
  • Rolling lab schemes, where fake tests are offered and billed to Medicare or insurance companies.
  • Services not performed, whereby insurers are billed for services that were never delivered.

Medicare fraud is one of the most common types of healthcare fraud. It is something that senior citizens are particularly vulnerable to. Medicare fraud wastes a lot of money every year and it results in higher costs for healthcare and taxes for all Americans. They may be billed for equipment that they don’t need or told that certain tests have to be performed. Con artists will also often try to get a senior citizen’s signature so that they can bill Medicare for further non-existent services. It is important to guard your Medicare card very carefully as if it is your debit or credit card. You should only give your Medicare number to people that should have it. Know that no one from Medicare is ever going to contact you and ask you for this number, except in very rare circumstances.

National Healthcare Anti-Fraud Association statistics show that healthcare fraud of various types costs the US about $68 billion per year.

Some of the more common Medicare fraud cases involve the following:

  • Provider tells you that you pay less out of pocket for the more tests you have
  • You are contacted by door to door sales or telemarketing
  • You are offered gifts from a provider to use them
  • The provider often waives your copays or charges copays when you know that the service is available without a copay
  • The provider makes a claim that Medicare endorses their product or service

Another type of Medicare fraud is Medicare abuse. This is when the provider is not following good medical practices. This may involve performing services that are not medically necessary. This is just as serious as Medicare fraud.

Health care fraud is very hard to detect. This is particularly true because con artists will usually target some of the most vulnerable members of society. To avoid it, never sign blank forms, keep records and only deal with registered physicians.

6. Bond/Strawman/Redemption Fraud

Another type is called the bond, strawman or redemption fraud. This is essentially based on a conspiracy theory that the government controls all bank accounts. Scammers then send information to people telling them that they can purchase kits to get into this scheme, and that it will enable them to discharge their debts or purchase things like homes and cars. This will obviously not work, and when customers ask why, they will be told that they didn’t implement the steps correctly. Con artists will usually look very trustworthy, using official forms and letterheads. Essentially, whenever people say they can give you access to secret accounts, help you avoid paying tax or bills and other such issues, they should never be trusted.

7. Mortgage Fraud

Mortgage fraud has become more common in the last 20 years. It is particularly concerning during a recession. Upsets in the housing market lead to people facing foreclosure, and dishonest people frequently line up to take advantage.

In 2015, the FBI opened nearly 600 mortgage fraud cases. There were 1089 mortgage fraud convictions. Nonetheless, the FBI still had nearly 2600 pending mortgage fraud cases to investigate.

Mortgage fraud cases usually involve people who qualify as distressed homeowners. They may be far behind on their mortgage payments or owe far more than their home is worth. These homeowners are ripe for mortgage fraud scammers.

Popular scams perpetrated by these criminals include phony mortgage rescue schemes, loan modification schemes, and equity skimming. The frauds frequently are carried out by real estate or mortgage specialists who have an in-depth knowledge of mortgage finance.

Mortgage fraud also can be perpetuated by the borrower. Some borrowers may claim to have assets they do not so that they can get a loan they cannot really afford. Mortgage fraud is damaging to lenders because they face high risk of default if the consumer cannot afford the loan. Criminals also may engage in mortgage loan fraud to steal funds from lenders.

Borrowers may also scam lenders by inaccurately stating their income, not occupying the home themselves, or getting a gift for a down payment and repaying it.

The FBI strongly advises homeowners who are in trouble on their mortgages to only work with mortgage professional they have carefully vetted. Seek referrals from professionals in the industry. Also, check licenses and walk away if the person is pressuring you. It also is advised to not engage in a mortgage modification due to an unsolicited relationship.

Statistics show that mortgage fraud is a growing threat. In the second quarter of 2016, 0.7% of US mortgage applications showed some type of fraud. Florida is currently the riskiest state for mortgage application fraud.

8. Debit Card and Credit Card Fraud

It is very easy to be scammed with your debit card. According to Investopedia, a Certified Fraud Examiner (CFE) named was a victim of this fraud. It happened a few years ago when the agent used his debit card to pay for a restaurant meal.

He stated that the server took his card and went to the register. She came back with the card and the receipt as he expected.

What he did not expect was two days later his bank called him to inform him that they were locking down his bank account and debit card. They suspected that it had been compromised. His card was used to buy goods more than 600 miles away.

The agent believes that the server stole his debit card information and either sold it or used it herself.

In this case, the fraud quickly was shut down. But it is strongly recommended that consumers never let their debit card out of sight during a transaction. Also, know that the liability limits for debit cards are less restrictive than credit cards. If you report the debit card lost, stolen or misused within two business days, the maximum liability under federal law is $50. If you report it within 60 days, the maximum liability is $500. But after 60 days, there is no maximum liability.

Many people also are victimized by credit card fraud every year. It is estimated that debit card and credit card losses could exceed $12 billion by 2020.

But you should know that there are strong credit card protections in place, if you discover the fraud in time. Under federal law, you should only have to pay $50 if the credit card is lost or stolen and used illegitimately. If you report the card lost or stolen before it is used, you have zero liability under federal law. Thus, it is important to regularly review your credit card and bank statements to ensure that no fraudulent activity has occurred.

National statistics show that financial institutions and merchants assume a lion’s share of the responsibility for most of the money that is lost through debit card and credit card fraud. Card issuers shouldered 72% of fraudulent losses in 2015.

9. Lottery Fraud

Most lottery fraud scams target the elderly. They typically originate with a telephone call or possibly a postcard that is sent from Jamaica. In 2011, the FTC received in excess of 30,000 complaints about lottery fraud.

A common fake lottery scam requests that the supposed winner send funds to cover taxes and fees on the prize. Victims who pay the fee are then requested to send more money to claim the prize. It is very rare for the stolen money to get recovered. Also, it is common for the names and contact information for the victims to be put on a ‘suckers list’ that is shared with other fraudsters.

The FTC warns consumers that they should never pay anything to collect a lottery prize. You should be very skeptical if you are informed you won a lottery that you never entered. Never share your credit card or bank account details. Never send money, even if the organization sends you a check first. Also remember that current US law does not allow for international sale or purchase of lottery tickets. So any communication regarding an international lottery is a scam.

According to international statistics compiled in 2014, losses from Nigerian lottery scams totaled $12.7 billion that year. Losses for lottery scams account for a massive $82 billion through 2014 around the world.

10. Charity Fraud

A phony charity can use the same techniques to steal money as real charities use to raise money. Before you give a donation, you should be certain of where your money is going. Do not pay attention to high pressure sales pitches. Never give cash, and always be on guard after a natural disaster. This is when con artists know that people are likely to be generous and sympathetic as they open their wallets. You should obtain the contact information for the charity and examine the organization before you provide funds. The organization also should be an IRS-approved nonprofit organization.

There are many examples of fraudulent charities. One of the worst is located in Florida called Kids Wish Network. Each year, the charity has raised millions of dollars in the names of dying children and their loved ones. It has been reported that the charity spends less than three cents of every dollar helping families and children. Most of the rest is used to enrich the owners of the charity. On average, the worst charities in America devote less than 4% of their donations to their causes.

11. Investment Fraud

The most common type of investment fraud is a Ponzi scheme. This refers to a scam where new investors are used to pay the ‘returns’ for the previous investors. A Ponzi scheme scammer will usually promise to invest your capital with very high returns and little risk. But most of the time, the scammer is using your money to pay off earlier investors. They also often keep money for themselves to spend on personal extravagances, or to pay off debt.

Ponzi schemes usually have little legitimate earnings, so the fraudster needs a constant stream of new money to keep things rolling. Some of the warning signs of a Ponzi scheme are:

  • Very high return with little risk. Any investment with a high guaranteed rate of return is a fraud.
  • Returns that are too consistent. Most investments go up and down. Be on alert if an investment generates a constant high rate of return, year after year.
  • Paperwork irregularities. Account statement mistakes are a common sign that something is not on the up and up.
  • Slow delivery of redemptions. Be very suspicious if you do not receive a payment on time or are delayed in cashing out.
  • Investment is unregistered. A Ponzi scheme usually involves investing in something that is not registered with the SEC. Registration is vital because it gives investors access to critical information about how the company is managed as well as its finances.
  • Complex strategies. You should be able to understand from your documentation exactly how your money is invested and where the returns come from. If you don’t understand or cannot get documentation, walk away.

Ponzi schemes also are uncovered on average once every four days, according to data from 2008-2013. These schemes are uncovered in almost every state every year.

Ponzi schemes are quite common. Even excluding the largest schemes, including the massive fraud by Bernie Madoff, the average Ponzi scheme size is a sizable $43.3 million.

12. Payroll Fraud

Did you know that payroll fraud happens in 27% of all US businesses? It occurs twice as often in small businesses with under 100 employees than big ones. It is important for business owners to have a good understanding of their payroll system. Enforce accountability with bookkeepers in monthly payroll reports. Payroll complexities increase as a company gets bigger, so it is vital that owners constantly scrutinize their books. Your bookkeeper should be able to clearly explain any discrepancies. If not, fraud is possible. At the very least, you should consider getting another bookkeeper.

Payroll fraud has been reported to occur twice as often – 14.2% – in small businesses than in ones with more than 100 employees – 7.6%.

Other Forms of Fraud

As previously mentioned, the number of types of fraud is almost endless. The six above are the most common types of fraud that exist today. However, the FBI is also on the lookout for:

  • Letter of credit fraud
  • Prime bank note fraud
  • Pyramid schemes
  • Pump and dump fraud, or market manipulation

Summary

This list makes it obvious that there are many types of fraud that consumers can experience. If you ever think you were the victim of any of these frauds or anything else, you should contact the police in your area.

Michael Bennett

About Michael Bennett

Michael Bennett is Editor-in-Chief of Consumer Protect.com. Since 1999, he's worked across a multitude of areas of consumer protection including defective products, environmental issues, identity theft, predatory lending and more. If you find his articles helpful please share them with your readers.