Fraud

What is Fraud?

Fraud refers to any deceptive activity engaged in by an individual with the aim of gaining something through means that violate the law. One keyword in fraud is deception, wherein the perpetrator leads their victim to believe in an untruth in order to obtain a benefit or value.

The most common place where fraud occurs is in the real estate industry, specifically in selling and buying, as well as in falsifying documents such as taxes and medical insurance claims. Fraud is not uncommon and is often carried out by individuals, organizations, and even companies.

Types of E-commerce Fraud

In the past, credit card frauds were the only thing people were wary about. However, with technological advancements and all the personal information people willingly input online, hackers are becoming more “resourceful” and “creative” in their means to deceive people. Here are some of the types of e-commerce fraud we can all become victims of:

1. Identity theft

No matter the era, identity theft will always remain a major concern for everyone, especially for online merchants, credit companies, and banks. What hackers do is take over the identity of the account owner and make purchases, for example, using stolen credit card information.

For as long as they are in possession of the individual’s personal details such as name, address, phone number, and credit card details, they can actually successfully purchase what they want online at the expense of the credit card owner.

2. Friendly fraud

Merchants are often the victims of this type of fraud. What fraudsters do is make purchases using their debit or credit card and then ask for a chargeback, saying that their credit card details were stolen. The merchant ends up giving a refund while the fraudster keeps the goods.

3. Clean fraud

Not even calling it clean fraud makes it clean or right. Clean fraud involves stealing credit cards and using the cards to make purchases while making sure that the perpetrators are able to escape theft detection that is being practiced by payment processors. Using the personal details of the card owner, the thief can successfully make purchases using the stolen card.

4. Merchant fraud

Merchant fraud is very common, especially online. It is also the reason why many people are doubtful about purchases that don’t do cash-on-delivery transactions. In merchant fraud, the order is received and confirmed by an e-commerce store but then no product or service is delivered, and no chargebacks are allowed. Merchant fraud is also otherwise called internet fraud.

5. Check fraud

Even issuing a check while knowing that there is not enough balance in this account is considered fraudulent. A check fraud also happens when a person steals another person’s check and forges their signature to make purchases or payments.

6. Pyramid schemes

Pyramiding involves a company that encourages people to make investments with the promise that they will get their returns if they are able to recruit downlines and when their downlines recruit their own downlines, too.

7. Charities fraud

People should be wary about groups claiming to be supporting or running charitable organizations and asking for donations. Before doing so, people must make sure to check if the group indeed is legitimate – that the charity does actually exist before falling into the trap of charities fraud.

Fraud Warning Signs

Fraud can happen to anyone who isn’t careful or selective in the offers they accept. Everyone should be aware of the warning signs to avoid falling prey to such fraudulent activities.

1. Dubious phone calls

People should watch out for telephone calls that claim to be from the federal government asking for their Social Security numbers and other personal details. There are also certain fraudsters that call and offer something in exchange for money.

2. Random emails

Random emails that ask the recipient to input their login details in the link as this may be a form of phishing. Once they click the link and they enter their details, the fraudsters can now use the login information to steal their accounts.

3. Unknown text messages or emails

Receiving a text message from an unknown number or email from an unknown sender stating that the recipient’s won the grand prize of a raffle and that they can receive the prize money if they deposit a certain amount of money to the sender.

4. Questionable job listings

There are job listings online wherein the person is asked to handle payments for the “boss.” The person will receive the money in their account, and they are to forward it to several recipients. It should be avoided at all costs as it may involve something illegal like money laundering.

5. Unverified wire transfer requests

People asking their victims to wire money is definitely another sign of fraud. Wiring money cannot be undone, and the perpetrator can access the money almost instantly, making reversals impossible.

Fraud is very common, and it can happen to everyone, regardless of status in life. Fraudsters don’t target only rich people but anyone who is willing to take their bait. So everyone should be vigilant.

Related Readings

Thank you for reading CFI’s explanation of Fraud. To keep learning and advancing your career, the following CFI resources will be helpful:

• Business Ethics
• Cash Larceny
• Selling Away
• Skimming
• Top Accounting Scandals
• See all ESG resources