Sneaky Ways Scammers Steal Your Money: Scambusters #1,202
Financial fraud is real and affects people and businesses every day. As more money moves online and financial systems get more complex, scammers find new ways to take advantage of trust. Learning how these scams work is one of the best ways to protect your money and avoid being a victim.
Accounting Fraud: When the Numbers Are Not in Your Favor
An accounting scam, aka financial fraud, is when someone intentionally changes financial records to mislead others. This can include things like overstating revenue or hiding expenses and debts. The main goal is often to gain money for the scammer or to create a false picture of a company’s financial health for investors, lenders, or the public.
These scams are not mistakes; they are intentional efforts to hide the truth. Whether a big company is lying about its finances or a small business owner is taking extra money, the main problem is deceiving others about their financial situation.
What Are the Common Types of Accounting Fraud?
Scammers use different ways to trick people and manipulate financial data. It’s important to recognize these common tactics to prevent falling victim to them.
- Embezzlement happens when someone who has been trusted with money takes it for personal use. It is a straightforward type of theft related to accounting.
- Accounts Payable Fraud happens when an employee creates a fake vendor and makes payments for goods or services that were never delivered.
- Companies sometimes record revenue before they actually deliver a service or ship a product. This practice can make their earnings look higher for a certain period.
- Expense Reimbursement Fraud is when employees may exaggerate their business expenses or submit personal receipts as if they were business costs to get a larger reimbursement.
- Payroll Fraud happens when someone creates fake employees, known as "ghost employees." These non-existent employees receive paychecks that the scammer collects.
Who Is Most at Risk of Accounting Fraud?
Some groups and organizations are more likely to be involved in or affected by accounting fraud. While anyone can be a target, these groups face a higher risk.
- Small business owners often have limited resources. This can lead to fewer internal controls, making it easier for employees or outside accountants to change records without being caught.
- Investors who want high returns may be attracted to companies that show false financial statements to seem more profitable than they actually are.
- Elderly people often are targeted. Seniors may have savings but might not be familiar with managing money online or knowing about current scams.
- Non-profit organizations often rely on trust and volunteers to run their financial boards. However, this can lead to less strict oversight compared to businesses. As a result, there can be a higher chance of fraud.
What Red Flags Do I Watch for in Financial Scams?
To spot fraud early, stay alert. Look for warning signs that something might be wrong with the finances.
- If you frequently can't find receipts, invoices, or contracts, this might be an effort to hide important records.
- Frequent differences between accounting records and bank statements that cannot be easily explained are a serious warning sign.
- Watch for sudden changes in an employee's lifestyle. If they buy expensive cars or take luxury vacations without a noticeable salary increase, it could be a warning sign.
- If an accountant or bookkeeper is defensive about their work or won’t share passwords and access to financial systems, look into it further.
- In legitimate accounting, transaction amounts are rarely exact round numbers. If you see many round figures, it might indicate that the numbers were made up.
How Can I Protect Myself From Accounting Scams?
It is better to prevent problems than to recover lost money. Strong controls can greatly lower your risks.
- Separate Responsibilities – Do not let one person handle every part of a financial transaction. For example, the person who writes checks should not also reconcile the bank statement. This system of checks and balances makes it harder for one person to commit fraud without being noticed.
- Conduct Regular Audits – Regular surprise audits can help prevent fraud. When people know that an independent party might check the books at any time, they are less likely to try to manipulate the records.
- Verify Vendors – Create a clear process to approve new vendors. First, check if they really exist. Next, verify their physical address. Finally, confirm their tax identification numbers before making any payments.
- Use Secure Software – Use modern accounting software that records every change in the system. This audit trail shows who made each change and when, ensuring accountability.
What Should I Do If I Suspect Accounting Fraud?
If you think there is fraud, it is important to act quickly and decisively.
- Gather Evidence – First, collect all relevant documents, emails, and financial records. Do not notify the suspect yet, as they might destroy the evidence.
- Limit Access – Take away the suspect's access to bank accounts, accounting software, and company credit cards.
- Talk to a Lawyer – Get advice from a lawyer who knows about fraud or employment law. They can help you understand your rights and what legal steps to take.
If the fraud is serious, file a report with the police or the relevant financial authorities.
A Realistic Scenario – The Vendor Trap
A mid-sized marketing agency employs an office manager named Sarah. She has worked at the company for ten years and is trusted by her colleagues. Sarah is responsible for handling all invoicing and payments.
For over six months, Sarah creates a fake company called "Office Supplies Plus." She makes invoices for small amounts—like $200 and $450—for basic items such as toner and paper. Since the amounts are small and the name sounds real, the owner signs the checks without checking them closely.
Sarah deposits these checks into her bank account. By the end of the year, she had taken $15,000. This is a clear case of accounts payable fraud. It happened because she had too much control; Sarah approved the invoices and wrote the checks.
Checklist To Protect Your Finances
Use this checklist to ensure you have the basics of fraud prevention covered.
- Divide Financial Tasks – Make sure that one person does not manage the entire cash flow process.
- Check Your Bank Statements Every Month – Look for any unauthorized transactions or unfamiliar payees.
- Require Employees to Take Vacation Time – Fraud is often discovered when the employee is away, and someone else takes on their tasks.
- Check Backgrounds – Screen all employees who will access financial accounts.
- Keep Your Checkbooks Secure – Store checkbooks in a locked place and check them regularly.
- Update Your Passwords Often – Use strong and unique passwords for all your banking and accounting accounts.
What Resources Are Available to Victims?
If you have fallen victim to an accounting scam, there are organizations dedicated to helping you recover and report the crime.
- Federal Trade Commission (FTC) – You can report fraud aimed at consumers or businesses through the FTC online portal.
- FBI Internet Crime Complaint Center (IC3) – For scams that occurred online or involved digital transfers, the IC3 is the appropriate reporting body.
Taking Control of Your Financial Security
Accounting scams often happen when people trust each other and when there is not enough oversight. You can protect your money and your financial future by understanding how fraud works and by putting strict internal controls in place. Stay alert, ask questions, and don’t think “it can’t happen here.”
Remember, Stay Alert and Stay Informed!