Tag Archives: fraud

Protect yourself from Tax Refund Fraud

Tax refund fraud has become a growing concern for taxpayers, state and local governments, and the federal government. Tax departments are implementing strategies to prevent and detect for the 2015 tax season.

The Ohio Department of Taxation (ODT) is implementing additional safeguards this tax season that will delay state tax refunds. The ODT is anticipating an increase in identity theft directly affecting tax fraud.

tax-fraudLast year, ODT stopped an unprecedented number of fraudulent income tax returns seeking to steal refunds totaling more than $250 million. In previous years, attempted tax fraud averaged roughly $10 million.

In order for the ODT to detect refund fraud due to identity theft, an additional up-front filter will now be applied to all tax refund requests to examine the demographic information reported on a return. This examination will then assign a “probability of fraud” factor that will determine how the return is then further processed by ODT.

If a return is pulled for review, ODT’s additional security measures will require some taxpayers to successfully complete an Identification Confirmation Quiz before the return will continue to be processed. If a taxpayer’s return is selected for identity confirmation they will receive a letter from ODT directing them to http://www.tax.ohio.gov. This will provide access to the quiz and detailed instructions on how to complete it. Taxpayers without access to the Internet will be directed to call ODT at 1-855-855-7579.

Processing of returns for refunds will be delayed due to these additional screening and security measures. According to the ODT, electronic returns requesting a refund may take up to 15 days to be direct deposited and paper returns could take up to 30 days for a physical check to be mailed out.

Not only is the ODT taking aggressive action on identity theft and tax fraud but so is the Internal Revenue Service (IRS). For 2015, the IRS is introducing new procedures which will address some of the issues. Effective 2015 tax season, the IRS is limiting the number of refunds directly deposited into a single financial account or onto a prepaid debit card. Therefore, any of the subsequent refunds will be issued by paper check and mailed to the taxpayer. Exceptions will not be made.
Visit the Taxpayer’s Guide to Identity Theft for helpful tips to protect yourself from identity theft or fraud.

By: Aubrey Forche, Staff Accountant


Fraud Knowledge & Prevention

With so many fraud cases in the spotlight recently it’s hard to figure out how to protect yourself. There have been many cases of credit card fraud, employee embezzlement, money laundering and so much more. With companies losing astronomical sums to fraud every year this begs the question: what steps are being taken to prevent fraud in the future and learn from past mistakes?

identity-theftTop in the news lately is the recent identity theft at Target. It has not yet been released exactly how this theft occurred but, generally, thieves are able to hack into a company’s databases and steal the information transmitted from a credit card’s metal strip when swiped on a card reader. Because of this, millions and millions of people are put on alert every year that their credit and debit card accounts have been compromised.

Another large fraud area is financial statement fraud; the examples that people first relate to are usually Enron and WorldCom. This fraud is often hard to detect because it is usually perpetrated by the company’s’ executives in an effort to report a better financial position than actually exists. This type of fraud is usually meant to deceive stockholders, owners, investors, banks, etc.

Small-scale fraud is most typically dealt with in companies. For instance, maybe “borrowing” $100 out of the petty cash drawer and paying it back on pay-day. Or maybe even forging an invoice so that the employee can collect the extra payment. There are several different ways that employees can embezzle money from their employers and thieves are getting more and more creative. Small-scale fraud like this is most often caught by the employer themselves so managers and supervisors need to be vigilant in taking note of this happening and ensuring that a swift punishment is delivered.

What steps are in place to avoid these frauds happening in the future? Credit card information theft is on a steep decline in Europe. Why? Because they have shied away from using metals strips in credit and debit cards and have, instead, an electronic chip embedded into them. The current stripe technology used in the United States is outdated; it remits the same information at the point of sale every time the card is swiped. The chip is state of the art and every time the card is swiped information is encrypted and as a result the information remitted is constantly changing. Fear not, chip technology is coming! The US will soon be adopting the chip technology and has a 2015 implementation deadline.

As a result of the large financial statement frauds committed in the past, financial reporting is much more regulated. Transparency is the name of the game and auditors are now required to do much further testing and disclose much more than they were pre-Enron.

Simple checks and balances and a segregation of duties is the most effective way of preventing and detecting small-scale fraud. Think about it, it’s much easier form someone to steal money from a company if they process invoices, approval invoices, and write checks vs. a different people being responsible for each job. In some companies it may not make financial sense to separate these positions (the company may be too small) so companies should do a cost/benefit analysis to determine their best practices.

Our firm also offers a FREE service to our clients called End Fraud Now. This service provides an anonymous and confidential way for employees and other business partners to report internal theft, bribery, harassment, and other illegal activities that could cause a loss to your company or subject it to legal exposure.  Check out the website today!

The moral of the story is that fraud is out there and everyone needs to not only be aware of it but actively preventing it. The government is stepping in and putting safeguards in place but that doesn’t mean that businesses shouldn’t be doing things independent of this. Putting a small amount of internal controls in place will save a company future time, energy, and money.

Courtney Elgin, CPA

IRS Criminal Investigation Unit

irs-dojMany people do not know what the Internal Revenue Service Criminal Investigation (IRS-CI) unit does, or that it even exists.  According to the IRS-CI annual report for fiscal year 2012, the IRS-CI mission is to “serve the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law”.

The IRS-CI was made up of 2,657 Special Agents and 1,104 professional staff as of the end of fiscal year 2012 (September 30, 2012).  Investigations undertaken by this group range from identity theft, to offshore tax evasion, to money laundering, to tax treaty cases, to terrorist financing, and to public corruption to name a few.

The annual report for fiscal year 2012 highlights a few accomplishments that occurred during the fiscal year.  Investigations initiated for fiscal year 2012 versus 2011 were 5,125 and 4,720 with investigation completions being 4,937 and 4,702 during the respective fiscal years.  Convictions totaled 2,634 in fiscal year 2012 and 2,350 in fiscal year 2011.  The percent sent to prison decreased from fiscal year 2011 to fiscal year 2012 by 0.2% to 81.5% in fiscal year 2012.

The annual report for fiscal year 2012 was released on May 10, 2013.  To view the report online, click here.   The report lists some general statistics, but it also lists key cases and investigations, along with the outcome.  If you enjoy reading about fraud schemes and about those convicted, I encourage you to read the annual business report.

By: Ryan Leininger, CPA

Tax Return Fraud & Identity Theft: Are YOU Safe?

Identity theft is on the rise and escalating to new levels.  Some time ago as individuals we knew where we should and should not leave our personal information and who we should be sharing it with and when not to.  More recently there has been a growing fear of identity theft by cyber criminals as a result of technology and the internet.  As consumers we have become extremely cautious about security even down to what we carry in our wallet and how we go about completing transactions; now our security can even be compromised while interacting on the Internet.

In the past, the primary sources of information stolen while interfacing on the web were an individual’s name, social security number, date of birth, and/or credit/debit card numbers. Nowadays these criminals are going as far as falsifying electronically filed tax returns.  According to the Federal Trade Commission, cyber criminals steal a driver’s license or an official form of identification in an individual’s name but with the criminal’s picture on them. They also use an individual’s name and social security number to get government benefits, and to file fraudulent tax returns.  These cyber criminals receive refunds in the form of checks or government approved debit cards which are many times delivered to vacant homes.

Unfortunately the victim of tax fraud is often unaware of the crime until they file their own tax return. Once the taxpayer and the IRS investigate the matter it is obvious that fraudulent activity has taken place.  In many of these cases the fraudulent tax return is very hard to trace, so the IRS is not only paying the criminal but rectifying the legitimate tax return for the actual taxpayer.

According to Daily Tech, as of now the IRS is dealing with 2.6 million cases of fraudulent returns for 2011.  The IRS seems to be reacting to tax return fraud by significantly changing their technology and increasing their staff to prevent, detect, and deter tax fraud.  In 2011, the IRS was able to prevent or stop approximately 1.3 million fraudulent claims.  Thus, the changes the IRS has made seem to be effective.  Keep in mind that fraudulent returns are created from criminals who stole your information somewhere else; the IRS has secure channels for electronically filing tax returns.

Be proactive as a taxpayer and do what is possible to minimize the risk of falling victim to identity theft.

  • Protect your social security number
  • shred sensitive information before you dispose of it
  • be aware of the sites used on the internet
  • select difficult passwords and log-in information
  • verify sources before giving out information
  • protect your purse and wallet, and use secure locations for personal information.

Tax returns supply some of this sensitive information therefore use reputable sources and trusted individuals.  Be aware of the signs of identity theft and monitor your financial and annual credit reports.  Many individuals have also invested in identity theft insurance which will not stop identity thieves from trying, but will help minimize the victim’s liabilities and losses.  Identity theft can cause substantial losses in some cases and can take some individuals years to recover from, which is very unfortunate.  For further information, The Federal Trade Commission offers great advice under “Fighting Back Against Identity Theft.”

By: Aubrey Forche, Accountant