The Growing Danger of Fraud: Implementing Processes to Prevent Identity Theft

The Internet has two faces. One, it’s a helpful contributor to the successes of individuals and businesses. But the other is much darker with dangers lurking, ready to pounce on an unknowing victim, which could be YOU. The Internet is full of good things, but it has also become a hotbed for criminal activities, including fraud.

Fraudulent activities intend to deceive and make people believe something is true. They’re much like lies but are far more dangerous because the perpetrator either:

  • Benefits from the dishonest behaviour, statement, or circumstance
  • Causes a loss

And in many cases, the fraudulent person or organisation gains both of the above. The term “benefits” above does not just refer to material benefits. It can be tangible or intangible, such as private information.

Fraud is intentional and is often planned in great detail to avoid getting caught or making a detrimental mistake. However, some fraudsters are reckless, and it’s often due to their lack of care and compassion for other people’s grief. They also have no regard for the consequences of their actions but will usually try to conceal their wrongdoings.

According to the scam statistics from the Australian Competition & Consumer Commission (ACCC), there are over 124,000 reports of scams in Australia for 2021 alone. Of this number, 9.6% reported financial losses with a total loss of more than $139 million.

There are a wide variety of scams, but the most common in Australia are those that involve investments, which garnered about $70 million in losses for 2021. Other types that affect the nation include:

  • False billing
  • Identity theft
  • Online shopping 
  • Phishing
  • Remote access
  • Pyramid schemes

People who commit fraud often:

  • Get pressured or lured to the activity by another person, entity, or a negative occurrence in their lives
  • Shown the opportunity to perform the scam, which can be due to a lack of oversight or weak fraud countermeasures,
  • Rationalise their actions, thinking that they will pay back the money they stole later or the other party deserved it, especially those who have no criminal history

Fraud continuously proves to be a challenging problem, no matter what industry you’re in. But it is a massive issue if you are in the financial services industry. Think about it. Just in the first six months of 2021, more than 8,000 cases of identity theft occurred. While financial institutions face a lot of difficulties in terms of fraud, identity theft is perhaps the most prevalent.

Identity theft is where another person uses another individual’s identity for the former’s benefit. Contrary to popular belief, identity theft can occur even with the owner of the information consents to the activity. It also takes place when the personal information used does not exist or is of a dead person. Businesses, including those in the finance sector, can also be victims of identity theft.

Financial services firms are often the targets of fraudsters, including identity thieves and phishing scammers. The primary purpose is to steal the identities of the customers, as well as their assets. But the business itself can also be the focus of the scheme. Typically, when the business is the victim, the scammers will pose as a different person or use a fake identity to get a loan, for instance. They have all the documents ready, including driver’s licence, bank statements, and even employment certificates. 

It’s scary to think that these individuals or groups can carry out such a comprehensive scheme for their own benefit. And that is why it is essential that financial firms should be more vigilant with a more robust anti-fraud system to stop scams and frauds in their tracks.

Financial Institutions fraud

Fraud Control and Prevention Tactics for Financial Institutions

Lender accreditation agreements often inform the finance broker to see the original documents of identification of the customer with their own eyes. Other contracts may state that the customer should at least be certified by a police officer, Justice of Peace, or any qualified person. In any financial transaction, customers are required to provide employment, address, income, and other details. All personal information should first be verified to ensure there is no occurrence of fraud.

Financial institutions have begun investing in digital identification platforms to try to combat identity theft. These solutions work well if a strong Know Your Customer (KYC) process and customer identification programs are in place. Doing so can benefit not only the lender and the person whose identity is stolen but also the finance broker.

In most cases, if fraud occurs and the lender experiences a loss of profit, the broker may be held accountable. The broker’s commission may be omitted or withdrawn and may even be required to pay for the total debt. The lender may also opt to cut ties with the broker, which has a damaging effect on the professional’s career.

So, as a way to combat and prevent fraud, including identity theft, in any broking transaction, it’s vital to perform the four steps below for identity checks and assessments:

  1. Employment Verification: including ABN search (employees), ASIC registration (businesses), employer website, and office street view on Google Maps
  2. Income Verification: including inconsistent fonts, spelling and grammar mistakes on payslips, erratic earnings, and incorrect calculation of superannuation
  3. Bank Statement Checks: such as font and formatting inconsistencies, incorrect running totals, use of whole numbers, and out of sequence transaction dates
  4. Identification Checks: including a comparison of the client’s photos to the person in front of you, Zoom or FaceTime live identification, or a third-party validating the client’s identification

If you have followed the steps above and there is a scintilla of doubt on a person’s loan application, trust your instinct. It’s wise to proceed only when all the requirements are satisfied.

How SalesKey Can Help

SalesKey is committed to helping those in the financial industry, especially finance brokers, by providing guidance in managing and operating their businesses. It’s always important to stay compliant with the laws, particularly when it comes to your licences, requirements, and other obligations. Fighting fraud is one way to stay compliant by means of having robust customer identification procedures and loan application checks.