Counteracting Identity Theft and Fraud

In 2014, Chapman University conducted a “National Survey of Fears.” The survey revealed the “fear of identity theft” ranked second in the top 5 list of Personal Fears and Concerns. Given this level of concern, what steps can you take to counteract threats to the safety of your assets and personal information?2015 09 image 1 IRS scams

Be Informed of Common Activities

One of the more prevalent incidents of identity theft involves the filing of fraudulent tax returns. Expected to soar again this tax season, the IRS estimates losses from tax-refund fraud will hit $21 billion by 2016, up from $6.5 billion just two years ago. And, recently the IRS announced that thieves had breached 334,000 taxpayer accounts. While it remains unclear whether information was actually stolen, these situations point to the necessity of remaining vigilant about protecting your social security number. One legislative response to these news releases is the proposed Social Security Identity Defense Act of 2015. If adopted, this measure will require the IRS to notify potential victims of identity theft. The Act also increases penalties and sentences for those committing the crime.

In related activity, taxpayers have also been targeted by convincing scammers who claim to be from the IRS Criminal Division. These criminals call taxpayers requesting social security numbers and other tax information and demanding payment for unpaid taxes. The IRS has advised taxpayers not to speak with anyone via phone and to request all IRS information be sent via mail to verify legitimacy.

In addition to widely-publicized events of identity theft, various other forms of financial fraud are also on the rise. Unfortunately, many such scams are aimed at seniors. Examples include calls to grandparents from “grandchildren” claiming to be in trouble and in need of funds immediately. Perhaps more sophisticated in nature are individuals who pose as “medical equipment manufacturers” offering free procedures in exchange for one’s Medicare number. That number is then used to bill Medicare for products or services that are never delivered. These are just a couple of examples of the vast array of fraud schemes families face in our daily lives.

Beware of Red Flags

One line of defense is to learn to recognize common tactics used by those attempting identity theft or fraud. For example, in the case of telemarketing schemes there are several characteristics that could serve as red flags indicating that you are being targeted:

  • The salesperson knows more personal information than you have revealed
  • They create a sense of urgency or a demand that you act immediately
  • If asked, they refuse to send written or detailed information until you commit
  • Your payment or credit card is demanded as a condition for further discussion

Another unfortunate trend is an increase in theft and fraud being committed by family members, caregivers or friends. These trusted individuals are often in a greater position to commit outright theft or forgery or to reroute assets without a victim’s authorization. One of the most telltale red flags of this type of activity is when a caregiver or another control person does not allow you or someone you know to speak freely or to meet one-on-one with your advisors. Another red flag is when individuals who are not responsible for your financial affairs seem to show a keen interest in them.               

Take Steps Toward Prevention

To help safeguard your identity, add a level of protection over your assets. Some prudent steps include:

  • Fight telemarketing fraud: Reduce the number of unwanted sales solicitations by not filling out “contest” forms as they tend to act as leads for telemarketing schemes. You should also consider screening your calls to avoid contact from unknown callers. Be willing to invoke a firm “I’ll get back to you” or simply hang up if you detect any red flags.
  • Secure your credit: Credit reports can be one of the best ways to detect theft that may otherwise go unchecked. The federal Fair Credit Reporting Act (FCRA) requires that U.S. consumers be entitled to a free credit report each year. Consider taking advantage of this requirement by utilizing one of the free credit reporting services available online. Many consumers rely on the website for credit reporting. Checking your credit at least once per year will help identify changes in your credit history and may alert you to attempted use of your identity to obtain credit.
  • Develop a team of trusted advisors: Advisors may include your accountant, doctor, therapist, and your Madison team. Each one should be encouraged to notify you if they observe activity uncharacteristic of your regular behavior. Oftentimes advisors in varying capacities working together can more quickly identify undue influence as the pattern is often reflected in various aspects of one’s life.
  • Give authority to a trusted family member: Most of your professional advisors are bound by rigid privacy protections which limit the extent that they can discuss your affairs with others, including family members. So, it’s wise to give authority to your advisors to contact someone you designate if they observe activity that is uncharacteristic of your regular behavior or spending patterns. Even young clients should consider such authority should they become incapacitated.
  • Monitor your financial accounts: This will serve to create a checks and balances that your assets are in order and there are no discrepancies in your financial affairs.
  • Develop a spoken line of defense: It’s helpful to have a prepared response for potential fraudsters “I run everything by my CPA or my wealth advisor, I’ll get back to you”. Legitimate business owners will understand and respect the extra level of care you exercise.

Finally, one of the most important ways to avoid being scammed is to have open lines of communication with those around you. Many times people become embarrassed because they don’t want to admit they are a victim or have fallen for a scam. Worse yet, it may be difficult to admit that someone close to you is taking unfair advantage. By communicating with your professional advisors, whether it be with your financial advisor, your attorney, clergy member, a friend, or other resource, having open communication with those around you will help you feel and be more protected in the Digital Age.

Important Note: These materials are provided for informational purposes only.  Please do not assume that any information contained in this Insight serves as the receipt of, or as a substitute for, personalized investment advice from Madison.