There are many types of financial fraud that you need to look out for. From people misrepresenting their income on their tax returns to epic schemes to defraud the government, it’s important to understand the different types of fraud, how they occur, and what you can do about it.
Misappropriation of Funds
The most common of all financial fraud is misappropriation of funds. Statistics show that asset misappropriation makes up about 90 percent or more of all financial fraud. Simply put, misappropriation of funds happens when someone takes money and payments not meant for them. For example, someone cashing a Social Security check for a relative that has passed away is perpetrating misappropriation of funds.
Bribery and Corruption
Another common type of financial fraud is bribery. It’s estimated that about 30 percent of uncovered fraud is from bribery and corruption. Though there are many stories of bribery and corruption, one of the most famous and expensive examples is Kellogg Brown & Root. This company was a spin-off from Halliburton. In 2009, the company was charged with a number of frauds, including paying off Nigerian officials with hundreds of millions of dollars so it could get a natural gas plant.
Employee Theft and Embezzlement
Employee theft and embezzlement makes up for $50 billion each year. The median amount that’s stolen is about $175,000. Embezzlement and employee theft happens all over the country in nearly every type of business. For example, Darryl McCauley was charged with embezzlement from his half-brother, Dane Cook. Over the years, he stole millions of dollars, which ended up in him serving prison time and having to pay the money back.
One of the most talked about types of financial fraud today is identity theft. This occurs when someone steals personally identifying information and uses funds that are in someone else’s name. When a credit card or social security number is stolen and used, this is identity theft. Because this is so prevalent, many people are trying to help crack down on it by earning a Bachelor’s in criminology and prosecuting the thieves responsible.
Nearly everyone today has heard of Ponzi schemes. This is a common type of investment fraud that gives money to old investors that was received by new investors. This money is passed off as returns from an investment; although, in most cases, an actual investment was never made. There are a few characteristics that most Ponzi schemes share, including unregistered investments, complex strategies, and high yet consistent returns. In 2011, there were 1,846 pending cases of securities and commodities fraud, many of which were Ponzi schemes.
Investigating these financial frauds isn’t an easy task. With so many types of financial fraud, some of which are being perpetrated to individuals and others happening on a corporation level, it takes a well-trained eye to see exactly what is happening in most of these cases. Have you ever been a victim of fraud? Share your unfortunate experience in the comments.