Top Fraud Predictions for 2015: Technology will shape the fight

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Scott Patterson, CFE
ACFE Senior Media Relations Specialist

Technology will give fraudsters an edge in 2015, but it will also provide new tools for organizations and investigators. Three of our experts weighed in on digital currencies, information security and other issues that will help shape the effort to prevent and detect fraud in the new year:

• Technology will increase the sophistication of fraud schemes. This is an existing trend that will accelerate in 2015, according to ACFE Regent Gerard Zack, CFE, Managing Director – Global Forensics for BDO Consulting. “More and more we are reacting to reports of fraud with, ‘how did they do that?’” Zack said. “It’s a reflection of schemes becoming more complex and capitalizing on technology, including some of the new technology deployed by companies in the interest of improving efficiency. While simple frauds still exist, we are seeing a distinct proliferation of more complex fraud schemes.”
• But technology (like data analytics) will also help catch tomorrow’s frauds. Zack is quick to note that for fraudsters, technology is a double-edged sword – as it will also be leveraged by the professionals trying to catch them. “There will be more breakthroughs in the use of technology to detect fraud – particularly in the use of visual analytics and also in the use of tools to mine unstructured data.”
• Improving information security will be a major priority. More massive data breaches, like the ones that have stricken Home Depot, Target Corp. and other large retailers over the past two years, are likely to occur in 2015, according to ACFE Vice President and Program Director Bruce Dorris, J.D., CFE. “These breaches have exposed widespread vulnerabilities among organizations that store and maintain personal information, putting millions of individuals at risk,” Dorris said. “Considering that storage of data continues to grow at an exponential pace, more trouble lay ahead – and there is an increasing need for information security and protecting against data breaches.”
• Digital currencies will shake up fraud risks for retailers and consumers. An increased acceptance of bitcoin and other digital currencies among merchants will signal a shift in fraud risk, according to Jacob Parks, J.D., CFE, Associate General Counsel at the ACFE. “Vendors/sellers face reduced fraud risks from ‘friendly fraud,’ where customers fraudulently cancel credit card or bank payments after receiving an item,” Parks said. “Digital currency transactions are generally permanent, which makes this scheme untenable. However, consumers face an increased risk of fraud by dishonest sellers, since the transaction is often not insured or protected by an agreement with a financial institution. Additionally, consumers using digital currencies have a reduced identity theft risk because the transactional data stored by the seller cannot be used by malicious parties to charge the customer (this also means vendors have a reduced risk of data breaches involving these customers).”
• With protections for whistleblowers increasing, more people will step forward to report fraud. Dorris said that a decade ago, few countries had whistleblower protections. However, increased awareness about the harm caused by major frauds at organizations has led to legislators looking to whistleblowers to prevent or mitigate such crimes. “France, South Africa, South Korea, Australia and other countries have all taken substantial reforms to protect whistleblowers, particularly those who identify crimes in the public sector,” Dorris said. “U.S. policy has moved beyond simply protecting whistleblowers; it now has several programs that financially incentivize whistleblowing regarding bribery, tax evasion and corporate accounting fraud. The programs are largely still in the beginning stages, but have already had major payouts.”

With a new year also comes new threats. But, as many anti-fraud professionals know, just as the fraudsters think of new techniques to wreak havoc, the fraud fighters standing on the other side are armed and ready to prevent and detect it. 

Want more? Visit ACFE.com to find two more fraud predictions for 2015.

Are We Losing the War on Identity Theft?

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Steve Lappenbusch, Ph.D.
Tax and Revenue Strategic Market Planner, LexisNexis Risk Solutions

An identity is stolen every three seconds – adding up to about 27,000 per day. In 2012, more than 12 million Americans were victims of identity theft. Furthermore, there have been a record number of security data breaches in recent years that have exposed more than 822 million records, compromising individuals’ personal information such as name, Social Security number (SSN) or bank account. The likelihood that at some point in our lives  each of us will fall victim to a data breach or identity theft is alarmingly high.

Identity theft has become an epidemic for government agencies as well. No sector of government is immune for the simple reason that the government cannot possibly know all there is to know about a person’s identity footprint. This is advantageous to identity thieves. who take advantage of the vast quantities of confidential personal data that is transmitted online. They are using this information against us – and, sadly, they are winning.

There are three critically important factors that LexisNexis has learned that can help government stop the current epidemic of identity fraud. All three things challenge current assumptions in every government system:

1. Everyone’s identity has already been compromised. 
2. Government programs cannot possibly know all there is to know about a person’s identity. Identities are always bigger than the government.
3. To assess an identity for risk, you have to understand identity risk outside government data.

Simply put, we are losing the war on identity theft. Our identities are freely available for pennies a piece on the Internet. It is time to defend ourselves against a crime where the fraud weapons used against us are our own identities. This is a fundamental change in the assumption around identities in government systems. Self-reported data must all be suspected, as most, if not all, identities have been compromised over time. Once the identity is assumed to be stolen, a new approach in identity risk analysis must be used.

Proceeding from the new, data-driven assumption that all identities are already stolen enables the government to think outside the traditional box of identity protection and begin thinking in terms of risk – identity risk. Specifically, how do tax agencies control the risk of all those stolen and synthesized identities hitting their tax systems – tax systems never originally designed for a world where you could not depend on the identity presented?

So, what is the answer? An approach that embraces identity risk analysis, rather than data matching, has proven effective at the state level. Primarily this means analyzing input tax identities against identity information far outside the tax system, or any government system, and against analytics derived from decades of identity risk expertise. 

Avoiding costly identity risks requires reconsidering what an identity really is, carefully cataloging and mapping your identities, and leveraging a unique combination of expertise, patented identity integration technology and a massive, unmatched, nationwide repository of identities going back more than 40 years. This allows you to take into account the complex, dynamic and rapidly changing nature of tax filer identities. It can also solve both owned and matched identity risks simultaneously by allowing identity integration. 

To learn more about identity challenges and risks facing the government today and solutions to help resolve these issues, visit IdentityGov.com.