types of schemes in business

10 Common Types of Financial Fraud & Schemes (With Examples)

Identity thieves are almost only ever after one thing: your money. Here’s how to recognize signs of financial fraud and protect your money from scammers.

types of schemes in business

Jory MacKay

Aura Cybersecurity Editor

Jory MacKay is a writer and award-winning editor with over a decade of experience for online and print publications. He has a bachelor's degree in journalism from the University of Victoria and a passion for helping people identify and avoid fraud.

types of schemes in business

Alina Benny

Alina Benny is an Aura authority on internet security, identity theft, and fraud. She holds a bachelor's degree in Electronics Engineering from the Cochin University of Science and Technology and has nearly a decade in content research. Twitter: @heyabenny

types of financial fraud

Aura’s digital security app keeps your family safe from scams, fraud, and identity theft.

Scammers Are Smart. You Have To Be Smarter.

Credit card and other types of financial fraud have increased more than 70% in the past year with Americans losing $56 billion to scams [ * ]. 

Criminals are getting more advanced and aggressive with their scams, and most of us don’t know what to do about it. According to a recent study, 79% of Americans feel they aren’t protecting their identity online as well as they should [ * ].

While there are too many types of financial fraud to beware of, almost every scam is based on these nine types of fraud. Here’s how to know if you’re the target of financial fraud and how to protect your finances from fraudsters. 

The 10 Most Common Types of Financial Fraud To Beware Of

Financial fraud can hit you in several ways. Here are the most common types of fraud you should be aware of:

  • Identity theft that leads to loan fraud, credit fraud, and bank scams
  • Advance fee fraud
  • Cashier’s check or fake check fraud
  • Tax refund fraud and “ghost” tax preparers
  • Fraudulent charities
  • Credit card fraud
  • Financial account takeovers
  • Ponzi schemes and other investment frauds
  • Small business fraud (embezzlement, employee theft, etc.)
  • Romance scams or pig butchering scams

1. Identity theft leading to credit, bank, or loan fraud

Identity theft refers to any kind of fraud committed by stealing personal information. An identity thief uses your personally identifiable information (PII) — such as your name, birthday, and Social Security number (SSN) — to gain access to your accounts and assets.

An identity thief can drain your bank account, open new loans in your name, or max out your credit card. A recent report found that on average, victims of identity theft lose $1,100 [ * ].

How does identity theft happen?

Criminals have a few options when it comes to stealing your sensitive information.

They might target you with a phishing attack where they email, call, or text pretending to be from your bank. Or, they could target you with a cyber attack to get you to install malware on your devices that steals your logins and passwords.

They might even steal your mail or illegally change your address to get your credit card statements sent to them. In some cases, the "thief" could even be a family member who opens a credit card in your name .

But by far, the easiest way to steal your identity is to buy your personal information off the Dark Web. 

Hackers have stolen billions of pieces of PII in the past year alone through data breaches. So even if you haven’t been directly targeted by a criminal, there’s a good chance you’re still vulnerable to financial fraud.  

Be especially careful with your SSN as it's not always possible to change your Social Security number — even after identity theft.

How do you know you're being targeted?

  • Unfamiliar transactions on your credit card.
  • Strange charges on your bank statements.
  • New credit cards or loans in your name.
  • Missing or error-filled tax returns.
  • Calls from debt collectors about purchases you didn’t make. 
  • A drop in credit score.
  • Bounced checks.
  • Calls verifying unfamiliar purchases. 
  • Hard inquiries on your credit report. 
  • Fraud alerts from your bank or credit monitoring service.

What to do if you’re a victim:

You’ll need to take different actions depending on what financial fraud a criminal has committed under your name. But in all cases, you’ll want to:

  • Contact all impacted companies and financial institutions. 
  • File an identity theft report with the Federal Trade Commission (FTC) at IdentityTheft.gov.
  • File a police report with local law enforcement.
  • Freeze or cancel affected accounts. 
  • Set up a credit freeze or lock to stop further financial fraud. 
  • Review your credit report and dispute any fraudulent activity
  • Change your account passwords and start using a password manager. 
  • Enable two-factor authentication (2FA) using an authenticator app.
  • You can also follow our fraud victim's checklist for step-by-step instructions on how to recover from fraud.

You might also want to consider signing up for credit monitoring and identity theft protection . 

For example, Aura monitors all your financial accounts and alerts you of suspicious activity. And if the worst happens, you’re covered by a $1,000,000 insurance policy for eligible losses due to identity theft. 

💡 Related: Is Identity Theft Protection Really Worth It? →

2. Advance fee fraud

Advance fee fraud is when a thief requires you to send money in advance for payments, products, or services. The promised rewards can range from better credit to money from a foreign prince, and more. But in the end, they either aren't what was promised, or never arrive.

One common example is a con artist claiming to get you a better deal on a loan or reverse mortgage in return for a “finder’s fee”. They’ll ask you to sign a contract that requires you to pay the fee once they introduce you to the financing source. 

But after you pay, you’ll often discover it isn’t what the “finder” claimed it to be. Or worse, that you’re ineligible for the loan. And because you signed the contract, you have no recourse. 

What are the warning signs?

  • A business asking you for prepayment for services such as securing a loans
  • Businesses or individuals that operate out of PO boxes or mail drops. 
  • Individuals that you can’t reach directly (i.e., they’re never in when you call but will call you back later).
  • Asking you to sign a contract like a non-disclosure agreement (NDA) that limits you from discussing the deal with other people. 
  • Businesses that don’t show up on the Better Business Bureau. (You can also run a Google search for “ Their name/business name + scam/fraud ”.)

Unfortunately, if you’ve been a victim of advance fee fraud, there usually isn’t a way to get your money back. But you should report the scam to the Federal Trade Commission (FTC) at ReportFraud.ftc.gov to protect future consumers.

Be wary of any offer that seems too good to be true or that only accepts unusual payment methods, like wire transfers or gift cards. Only share financial information once you’re sure a process is legitimate.

3. Cashier’s check and fake check fraud

The cashier’s check fraud is a simple bank scam that relies on the fact that it can take weeks for a cashier’s check to be verified. Reports of this scam have grown by 65% since 2015 [ * ], prompting all the more reason to be aware.

How does cashier’s check fraud happen?

Scammers send a forged cashier’s check with false information, which you’re able to deposit without a problem. Then, they ask you to make a withdrawal of some or all of the money and send it to them or a third party as a wire transfer.

When the check is discovered to be bank fraud , the scammer is gone — along with the wire transfer (which you can’t reverse). 

This same scam can be run using fraudulent checks as well. A scammer will wait outside a financial institution or send you a picture of a check and ask you to deposit it for them.

Then, they’ll tell you to keep some of the money for yourself and send them the rest. When the check bounces a few days later, the money will be taken out of your account.

  • A seller who only accepts cashier’s checks.
  • Offering you more money than you’re asking for a product. This is especially risky on marketplaces like Craigslist or Facebook Marketplace .
  • Asking you to deposit a check for them and wire them the money (minus a fee).

If you’ve deposited a cashier’s check and sent the scammer a wire transfer, there unfortunately isn’t a way to get your money back. 

Instead, you should report the fraud to the FTC at ReportFraud.ftc.gov. 

If you’ve only deposited a cashier’s check, don’t send money back to the scammer unless you know them personally. Even then, you should suggest a more secure online payment method like PayPal or escrow instead.

💡 Related:  What Is Credit Monitoring (And Do You Really Need It?) →

4. Tax refund fraud and “ghost” tax preparers

Most people get stressed when dealing with their taxes or the IRS. That makes tax fraud an appealing target for financial scams. One of the most common ones is tax refund fraud . 

How does tax refund fraud happen?

Tax refund fraud is a type of identity theft where criminals fraudulently file tax returns in your name. They’ll report incorrect income in order to maximize your refund, which the criminal will then deposit. 

In 2020, the IRS flagged 5.2 million tax returns as fraudulent [ * ].

There are a few other versions of this scam. In one, a fraudster pretends to be from the IRS and demands personal information or payment for taxes owing. You could also deal with an unethical tax preparer who steals your information or fraudulently files for a refund under your name.  

  • Getting a letter from the IRS stating that multiple returns have been filed in your name.
  • Receiving unfamiliar tax documents like a W-2 or 1099 form. 
  • Notifications of an unfamiliar IRS.gov account.
  • Receiving unsolicited tax transcripts. 
  • Your bank blocks your tax refund check . 
  • You receive a refund check before you file your taxes. 
  • Your tax preparer refuses to sign your return or can’t explain discrepancies.

If you’ve received a letter about tax return fraud from the IRS, follow the steps laid out in the letter. If you learn about the scheme on your own, contact the IRS immediately and follow their recommendations.

In most cases, you’ll need to fill out an Identity Theft Affidavit and print and mail it with your legitimate return. 

If you’ve sent money to a fraudulent IRS agent or tax preparer, immediately cancel the transfer. If you’ve given them your bank information or credit card number, call your financial institution’s fraud department. 

You should also report the fraud to the IRS at [email protected] (for scam emails) or 202-552-1226 (with the scam number that contacted you).

💡 Related: Is There Debt In Your Name That Isn't Yours? Here's What To Do →

5. Fraudulent charities

Scammers use philanthropy as fraud, too. Charity fraud entails creating a fake charity and collecting “donations” that disappear along with the thief.

How does charity fraud happen?

Scammers create fake charities — like military veteran charities — that sound like ones you know and trust. These scams are especially common during natural disasters or international news events. 

  • Claiming that you’re a previous donor when you know you’ve never sent them money.
  • Only accepting donations through cash, cryptocurrency, gift cards, or wire transfers . 
  • Pressuring you to donate or even offering to pick up the money in person. 
  • Using unsecured websites. (A secure website uses “https://” not “http://” and should have a small padlock symbol near the URL). 

If you’re a victim of charity fraud, report it to the FTC. Unfortunately, there usually isn’t a way to reclaim the money you’ve given.

Be wary of unfamiliar charities asking for donations. Before donating, check sites like Charity Navigator or CharityWatch . Never share information such as your bank account number when you can use another payment method.

💡 Related: 7 Ways to Spot FEMA Scams and Protect Your Relief Money →

6. Credit card fraud

There are several ways that criminals can steal your credit card information . They could steal your physical card, trick you into entering information on a phishing website or email, buy your details on the Dark Web, or use any number of other credit card scams . 

Hackers can also create a clone of your physical card using just your credit card numbers. 

  • Suspicious transactions on your credit card or bank statement. 
  • Small unfamiliar charges on your account. (Fraudsters use a scam called carding to validate your credit card before making large purchases.)
  • Fraud alerts from your bank, credit card issuer, or credit monitoring service.
  • Calls from creditors about purchases you didn’t make or new accounts you didn’t open.
  • A lower balance than expected. 
  • Sudden changes to your credit score. 
  • Transactions from locations you haven’t been (i.e., foreign countries). 

If a scammer has access to your credit card, you’ll want to act fast and shut down your compromised accounts and prevent credit card fraud. 

Contact the fraud department of your lender, card issuer, or financial institution and explain the situation. They’ll be able to help you freeze or close your accounts and get new cards. You’ll also need to file a report with the FTC at IdentityTheft.gov and file a police report if your physical card was stolen. 

Next, review your credit report for any fraudulent activity and dispute the charges. Finally, you’ll want to set up a credit freeze or fraud alert to stop further transactions. 

If a criminal has access to your credit card, they most likely have other sensitive information. Change all your account passwords to be more secure and consider signing up for credit monitoring.

💡 Related: What Is Credit Protection? Are You Making the Most of It? →

7. Financial account takeovers

When an identity thief scams you online to gain access to one of your online financial accounts (or any account), it’s known as an account takeover (ATO) . A recent study showed that as many as 38% of consumers had been victims of account takeovers [ * ].

How do financial account takeovers happen?

Typically,  this kind of scam works because someone gains access to your email and password through phishing, a data breach, or an emerging cyber threat such as a man-in-the-middle attack where they steal your credentials while using public Wi-Fi.

You might think that hackers only want access to your accounts at financial institutions. But there are plenty of other valuable accounts that many users don’t secure. For example, a thief can buy goods with access to your Amazon account, or ask friends for money on Snapchat .

Plus, if you reuse passwords or use single-sign on accounts (i.e., log-in with Facebook), they can access multiple accounts with a single takeover. 

  • Being locked out of your financial or social media accounts. 
  • Notifications of failed login attempts or two-factor authentication codes you didn’t ask for.
  • Your account looks different. 
  • Strange messages sent from your social media accounts . 
  • Alerts that someone logged into your account from a different IP address or location.
  • The email or phone number associated with the account is changed without your permission. 

Immediately contact the impacted companies and follow their recommendations to verify your account. 

Once you’ve secured your accounts, you’ll want to change all your passwords. Use strong pass phrases that combine letters, numbers, and symbols. Consider a password manager for keeping them safe.

Whenever possible, enable two-factor authentication (2FA) on your online accounts. This is a special, one-time code that’s required to log into your accounts along with your password and username. 

However, don’t use SMS as it can be compromised if your phone is stolen or hacked. Instead, use an authenticator app like Google or Okta. 

8. Ponzi schemes and other investment fraud

Simply put, investment fraud gets you to put money into an investment that isn’t real. While we often imagine predatory structures like Ponzi schemes, the most common fraud schemes are simple: the thief disappears with your money.

How does investment fraud happen?

Fraudsters often lure victims with promises of large gains, little risk, and once-in-a-lifetime opportunities. In many cases, investment schemes target affinity groups — such as people who share a common religion or cultural background — to build trust. 

Sometimes the supposed investors are asked to sign non-disclosure agreements, which can keep victims quiet once the thieves disappear.

  • Special investment offers sent though unsolicited emails. 
  • One-of-a-kind or too-good-to-be-true opportunities. 
  • Anyone who claims they’re offering a “semi-legal-investment opportunity”.
  • Investment schemes where the company is new or you can’t find additional information about them online. 
  • Investors asking you to sign an NDA before sending payment.

Victims of investment fraud should report the fraud to the FTC. Unfortunately, it’s unlikely you’ll recover money from this type of scam. Instead, do what you can to protect others. Leave negative reviews on sites or be vocal about the fraud. Scammers rely on our silence to keep on defrauding innocent people. 

9. Small business financial fraud (embezzlement, misuse, etc.)

If you’re a business owner or entrepreneur, you’re at special risk for financial fraud. Losses from employee theft, embezzlement, and misuse of funds makes up for $50 billion dollars a year [ * ]. 

Your employees can steal from your business in several ways. The most common scams are embezzlement and misappropriation of funds. 

Generally, white-collar crimes occur when employees have financial power without oversight and control. For example, where they have freedom to use a company credit card or write off lost or damaged merchandise.

Often the fraudsters are trusted employees, which makes this an emotionally devastating type of financial crime.

What are some warning signs?

  • Employees who are secretive about expense accounts or inventory. 
  • Missing inventory or a higher-level of loss than you expect.
  • Unexplained expenses on your company credit card.
  • Employees who suddenly show signs of financial gain they can’t explain.

If you suspect an employee is embezzling money from your company, speak to a lawyer and other experts. These are sensitive cases. You’ll need legal advice to handle the situation correctly.

In the future, restrict access to financial information to only trusted employees who need access for their day-to-day work and perform regular audits.

💡 Related: Help! Someone Forged My Signature on a Check and Cashed It →

10. Romance scams

💡 Related: How To Avoid the "Pig Butchering" Scam Costing Victims Millions →

How To Protect Yourself From Financial Fraudsters

Financial fraud can be devastating. Whether a scammer gets access to your credit card numbers or convinces you to invest in a fraudulent scheme, you’re out your hard-earned money. 

Follow these fraud prevention tips to keep your accounts safe from scammers. And for extra protection, consider Aura’s credit monitoring and identity theft protection service. 

Even if you have no idea what to do if your identity is stolen, Aura has your back.

With Aura, you get:

  • Near-real-time credit monitoring and fraud alerts: We’ll monitor all your bank and credit accounts (including your credit report) for suspicious activity. Aura alerts you of potential fraud 2X faster than the competition.  
  • Account monitoring: Know right away if your online accounts have been compromised. 
  • Dark Web scanning: We scan the Dark Web for your personal information, like your credit card or Social Security number.
  • VPN with Wi-Fi and malware protection: Keep all your devices safe from hackers and malware with military-grade encryption and Wi-Fi protection.
  • One-click credit lock: Secure your credit report from unwanted inquiries by locking your Experian report.
  • $1,000,000 insurance policy : Every Aura plan comes with a generous insurance policy for eligible losses due to identity theft. 

Ready for iron clad identity theft protection? Try Aura for 14 days free .

Award-winning identity theft protection with AI-powered digital security tools, 24/7 White Glove support, and more. Try Aura for free.

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Business Scams 101: Common Schemes and How to Avoid Them

Table of contents.

types of schemes in business

You’ve undoubtedly heard about consumer scams in some shape or fashion. Perhaps you’ve read a story about an elderly relative whose retirement funds were drained by a pretend tech support agent, or saw something on the local news about people writing bad checks. These types of scams are certainly a threat to individuals and families. What you may not realize is that many companies also find themselves in the sights of scammers. In too many cases, they don’t see the signs of fraud, and don’t know what’s happening until it’s too late.

Below, you’ll find a guide for avoiding scams in business, especially the kind that take the form of business-to-business (B2B) interactions. Whether you own a business or are employed by one, this is information you’ll want to review very carefully. You’ll find a list of the scams most often employed by those hoping to swindle companies out of their cash. You’ll also learn about the steps you can take to ensure your business doesn’t become a statistic.

Business Scam Statistics

Common scams targeting businesses, fastest growing scams.

  • How To Protect Your Business From Scams

Stay on the Defensive

References and additional reading.

  • Business email compromise scams have resulted in $3 billion in losses since 2016, more than any other type of fraud in the U.S. 1
  • In 2020, there were 241,342 complaints of phishing scams, amounting to more than $54 million in losses. 2
  • Check and payment tampering fraud schemes were four times more common in small businesses than in large organizations in 2020. 3
  • Scammers took advantage of the pandemic in 2020, and the Internet Crime Complaint Center received over 28,500 fraud reports involving Paycheck Protection Program (PPP) loans, Small Business Economic Injury Disaster Loans, and other COVID-related fraud. 4
  • At the beginning of the Covid-19 pandemic, one Virginia couple scammed nearly 1,700 small business owners through a complex business loan scheme. 5
  • Between 2019 and 2020, job and employment agency scams increased by over 250 percent. 6
  • In the U.S., the average data breach cost companies $9 million and took over 200 days to be identified in 2021. 7
  • In companies where remote work caused the data breach, the average cost was actually $1.7 million more than in companies where remote work wasn’t a factor. 8

Business identity theft

Identity theft isn’t just a peril for individual people – businesses, too, can be harmed by scammers. Identity theft increased by more than 113 percent in 2020 as people fell on hard times , according to our analysis of Consumer Sentinel Network data . This type of scam typically occurs when someone poses as a decisionmaker at your company, making purchases or taking on debt that you’ll eventually have to foot the bill for. Experian recommends that those in charge of a company’s finances regularly check credit reports to make sure all charges are accurate and legitimate.

Impostor scams

If someone calls you pretending to be from a government agency or another trusted entity, and proceeds to request sensitive information about your business, you may be on the receiving end of an imposter scam.  According to data from the Consumer Sentinel Network, these types of crimes rose by 45 percent from 2019 to 2020.

One particular scam, as reported by Business News Daily , involves someone purporting to be from the Small Business Administration (SBA). As the SBA has been handing out COVID-19 relief loans to small businesses, scammers have taken note and are using the situation to try and acquire sensitive account details.

Government entities like the Internal Revenue Service (IRS) or SBA typically don’t ask for payment over the phone, so if your caller wants money, consider that a red flag. Typically, the IRS will contact you first by mail if they need information from you.

Business lending scams

If you’re in the midst of shopping around for a business loan, you should keep an eye out for deals that offer overly gracious terms. Business lending scams will often promise you outstanding rates, even if your company’s credit is subpar. But you’ll only get access to these dream loans if you pay an upfront fee — which the scammer will promptly pocket before they disappear. You should do deep research on the lending institution in question before you commit to sending any money.

Fake invoices and payment requests

Larger companies are often targeted by invoicing or payment request scams. Why is that? If they’re very large, they’re more likely to pay out a request without giving it a close look because of the sheer volume of invoices they have to process. By the time you catch on, the scammer already has your money and is long gone. According to the Minnesota State Attorney General’s Office , fake invoices are often for directory listings, memberships, and office supplies.

Small businesses are especially vulnerable to directory listing scams. These occur when a company pays for space in a business or phone directory that does not actually exist. Before paying for any directory listings or ad space, do your research on the company by looking for a legitimate website or reviews.

Fraudulent service offerings and office supply scams

Some scammers represent themselves as legitimate companies offering business services or office supplies. You could place an order, believing you’re getting a great deal on a product or service, only to find the outfit you paid has no intention of delivering. These scams have become especially common in the wake of COVID-19. More employees are now working from home and may be looking for better internet service or office supplies they can order for themselves.

To avoid office supply scams, the Federal Trade Commission (FTC) recommends purchasing from suppliers who’ve been reliable in the past, or from suppliers who’ve been recommended by people you know and trust.

Cyber threats

Analysis of Consumer Sentinel Network data showed that cyber threats were among the most reported internet crimes in 2020, rising by over 2000 percent from 2019. It should come as no surprise that, due to COVID-19’s impact on the economy, scammers increased their digital efforts against companies. Hackers often target businesses because they tend to have bigger bank accounts. If critical data at your company becomes compromised, you could receive messages from scammers shortly after demanding payment. Worse yet, they could gain access to company email and use that to access bank account information. As the FBI’s Internet Crime Complaint Center reported, businesses lost $1.8 billion in such attacks last year.

Fake check or overpayment scams

According to the American Bankers Association , check scams are some of the oldest schemes in the book and remain fairly common to this day. They take the form of someone – be it a customer or someone posing as another business – paying you more than you’re owed via check, then asking you to pay back the difference.

If this occurs and the payer requests a refund through prepaid credit card, gift card, or wire transfer, be very suspicious. Scammers like to be paid using these methods because they’re more difficult for the authorities to track. Holding refunds for check payments several weeks could help you avoid getting burned. Under no circumstances should you refund a customer using an untraceable channel.

Charitable solicitations

Not every charitable request is for a good cause! Some scammers may take advantage of your company’s generosity and ask for a donation to a fundraiser or sponsorship opportunity that isn’t legitimate. They could also act as though they represent an established nonprofit when they’re really lining their own pockets. This type of scam is on the rise: between 2019 and 2020, reports of charitable solicitation schemes rose by 32% according to the Consumer Sentinel Network database. New, fraudulent charities tend to pop up during times of disaster.

Before making any type of charitable donation, research the organization through a nonprofit rating site like Charity Navigator or GuideStar. These sites will give detailed information about charities’ profit and loss statements, leadership teams, and impact so you can make sure your donations will truly be making a difference.

Business email compromise and phishing scams

Spam email remains a plague, and email phishing scams have been a menace for decades . If you get an offer on a business deal that sounds too good to be true, or receive an unexpected password reset request for one of your company’s accounts, you may be dealing with a scammer. If you do get a message that appears to be from a legitimate company, it’s still a good idea to do your research on them. According to the FTC , scammers are more than capable of making a fake website or email that looks like the real thing.

Scan emails for discrepancies to avoid becoming the victim of a phishing email. Make sure the name of the sender is the same in the body of the email and in the “from” section. Also, if the email subject line begins with “Re:”, make sure that the sender is actually replying to an email message you initiated.

The FTC collects and shares millions of reports on fraud, scams, and other cybercrimes through its Consumer Sentinel Network . Using this information, we looked into the scams that could impact businesses and calculated which types are growing in frequency.

The latest data from 2020 revealed that individuals and businesses were reporting issues with malware, online payment and shopping platforms, employment agencies, and identity theft at much higher rates than in 2019.

Business-related scams that increased between 2019 and 2020

Source: FTC Consumer Sentinel Report 2019 , 2020 Note: Data in the table represents reports from businesses and individuals.

How to Protect Your Business from Scams

Now that you’re more familiar with the most common and fastest growing scams, can you identify the scams that your company could fall victim to? Conduct a review of your company and check it against our scam list to identify any possible threats. Although it can be nerve wracking to find vulnerabilities in your business, there are steps you can take to protect your assets and data.

Train employees on safety

If a large number of employees are authorized to pay for services or supplies, Make sure every employee authorized to pay for services and supplies knows how to protect payment details, identify secure and insecure websites, and spot the warning signs of a scam. Consider conducting a scam simulation workshop in the office. In addition, your company can create a scam avoidance guidebook, and – as ACFE Insights recommends – provide case studies of past scams so employees can see where other companies went wrong.

Alternatively, you could leave purchasing responsibilities in the hands of a trusted few in order to reduce your risk. You’ll just have to make sure those team members also know how to keep your company’s resources safe.

Know an imposter when you see one

Some scammers like to send official-looking emails from companies you may or may not do business with. These emails often contain links that will send you to a copy of that company’s website, where the scammer hopes you’ll attempt to sign in (and helpfully give away your credentials). How do you spot a fake? Double-check the URL of the website you land on to make sure it matches that of the actual business. Also, make sure the site you’re on has an SSL certificate . This is a sign that any data you transmit will be secure and encrypted.

Establish procedures for everyone to follow

In general, you should have systems in place for dealing with potential scams. There should be guidelines on the types of information that should not be shared. Employees should know who to report suspected fraud to both inside and outside the company.

Where money is concerned, lay out a step-by-step process every employee should follow when paying vendors or issuing refunds. It may be worthwhile to put policies in place before workers can send out checks or type credit card numbers into websites. For example, employees could request authorization from a supervisor before they make purchases or payments.

Protect devices, files, and networks

How secure are employee phones and laptops? How strong is your company firewall? Do employees know not to send sensitive materials electronically to those outside your business? An internal audit of your devices and the practices your employees engage in could help you fend off attempted scams.

For example, you might want to ensure employees are using strong passwords to lock their accounts, and that they have two-factor authentication enabled. Enacting a policy that requires regular password changes could also help tighten up security.

Instruct employees not to conduct business while connected to public hotspots, such as those found in airports and coffee shops. For hackers, it is relatively trivial to scoop up data (such as logins and passwords) sent over unsecured wireless networks.

Anyone with access to sensitive or private customer data should have their own login, as well, and any attempts to open or download that data should be logged. That way you can create a trail that’ll lead you to the employee who disclosed the information, or help you figure out whose account is compromised.

Research new vendors and confirm payees

Do you know who you’re paying and what company names are used by your vendors? These details are too crucial to overlook. Each time you begin a relationship with a new payee, be sure to get a sample invoice from them so you know what one looks like. And when you receive an invoice for real, make sure you’re cutting a check to the right business, and that you’re sending money to the right place.

Report attempted and successful scams

Maybe you’ll get lucky and recognize one of the aforementioned scams before things go too far. Or maybe you’ll fall prey to a scam as so many do every day. Either way, you should report what happened to the FTC. The agency has a special webpage specifically for those who want to provide tips. The Better Business Bureau has one too .

Reporting attempted scams can help prevent scammers from striking again. Taking a few minutes to do this could save other businesses from losing their hard-earned profits, and could lead to serious consequences for the perpetrators.

Keeping your business safe from scammers is truly a team effort. It requires a well-trained and disciplined staff, and an understanding that you can never let your guard down – you must remain vigilant.

If you follow the guide above, you’ll know how you can further protect your company’s assets from would-be thieves, and how to spot any signs of trouble before things get out of hand. Don’t become a statistic in next year’s FBI report: take action now to plug any holes inside your organization, and stay up to date on the topic so you’re always aware of any new scams making the rounds.

Additional Reading

  • Experian: Business Identity Theft
  • IRS: Identity Theft information for Businesses
  • Small Business Daily: Don’t Become the Next Victim of a COVID-19 Scam
  • FTC: Scams and Your Small Business: A Guide for Business
  • FBI Internet Crime Complaint Center: Internet Crime Report 2020
  • FTC: Report Fraud to the FTC
  • Better Business Bureau: Report a Scam
  • Better Business Bureau. (2019, Sept. 25). Is That Email Really From the Boss? A BBB Study of Business Email Compromise Scams. Retrieved August 10, 2021, from https://www.bbb.org/article/news-releases/20728-is-that-email-really-from-the-boss-a-bbb-study-of-business-email-compromise-scams
  • Federal Bureau of Investigation. (2020). 2020 Internet Crime Report. Retrieved August 10, 2021, from https://www.ic3.gov/Media/PDF/AnnualReport/2020_IC3Report.pdf
  • Associate of Certified Fraud Examiners. (2020). Report to the Nations 2020 Global Study on Occupational Fraud and Abuse. Retrieved August 10, 2021, from https://acfepublic.s3-us-west-2.amazonaws.com/2020-Report-to-the-Nations.pdf
  • United States Department of Justice. (2021, Apr. 9). Man Sentenced for Defrauding Nearly 1,700 Victims in $1 Million Small Business Loan Scam. Retrieved August 10, 2021, from https://www.justice.gov/usao-edva/pr/man-sentenced-defrauding-nearly-1700-victims-1-million-small-business-loan-scam
  • Federal Trade Commission. (2020). Consumer Sentinel Network Reports. Retrieved August 10, 2021, from https://www.ftc.gov/enforcement/consumer-sentinel-network/reports
  • IBM. (2021). How much does a data breach cost?. Retrieved August 10, 2021, from https://www.ibm.com/security/data-breach

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41 Types of Workplace Fraud + Top Prevention and Detection Tips

Know the fraud schemes and red flags to protect your company from harm.

A former Apple employee recently pleaded guilty to defrauding the company to the tune of more than $17 million during his seven-year tenure. As a buyer in the Global Service Supply Chain department, he used his purchasing powers and relationships with vendors to take kickbacks, inflate and falsify invoices, and steal supplies.

Employee fraud is one of the most expensive liabilities organizations face. In fact, the ACFE’s Report to the Nations found that companies lose, on average, five per cent of their revenues to employee fraud.

As the news story above proves, even the world’s largest companies aren’t immune to internal fraud schemes. No organization can afford to wait until fraud occurs to implement controls.

In this guide, you’ll learn about nearly every type of employee fraud you could possibly encounter, warning signs of fraud schemes, and how to detect them early or prevent them all together to protect your company’s finances.

Don’t gamble with your company’s investigation processes.

Case IQ software is a better way to manage investigations. Case IQ is a specialized investigative case management tool to make your investigations more efficient and consistent. Request your demo of Case IQ to find out how users are saving time, closing more cases, reducing risk, and improving compliance.

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Types of Fraud and Theft

One of the biggest challenges of detecting, investigating, and preventing employee fraud is the sheer number of types of fraud and theft. Each requires a different discovery method and needs to be handled in a different way.

While every department presents opportunities for employees to steal, operations and accounting are the most frequent offenders. In addition, about 62 per cent of theft is carried out by employees at the managerial level and above ( ACFE ).

Most types of fraud schemes within organizations fall into the following categories:

Table of Contents

Asset misappropriation, vendor fraud, accounting fraud, payroll fraud.

  • Bribery & Corruption

Employee Fraud Detection Tips

How case iq can help.

Asset misappropriation is a broad term that describes many employee fraud schemes. Put simply, it’s the theft of company assets by an employee, also known as insider fraud.

Asset misappropriation schemes include:

Check Forgery

An employee makes out a company check to him/herself or someone else. They might forge a signature or use their own if they have signing authority.

Check Kiting

An employee writes checks on an account that doesn’t have sufficient funds with the expectation that the funds will be in the account before the check clears.

This type of fraud scheme is less common nowadays, with faster check clearing times and more widespread use of electronic banking.

Check Tampering

An employee alters the payee, amount, or other details on an existing signed check, or creates an unauthorized check.

Inventory Theft

An employee steals product from the company, either by physically taking it or diverting it in some other way. This is especially common in industries selling high-value goods (such as luxury clothing or accessories, pharmaceuticals, or electronics) that the employee can then resell.

Theft of Cash

Most common in retail environments where cash exchanges are common, this type of fraud covers:

  • Stealing cash
  • Skimming (not registering a sale and pocketing the cash)
  • Return fraud (an employee colludes with someone else to return goods fraudulently for a refund)
  • Any other scheme that involves the removal of hard currency

Theft of Services

An employee misuses company services or company-funded services. For example, a secretary at an auto shop might get the mechanics to do their oil changes for free.

Expense Reimbursement Fraud

Also called expense fraud, this type of fraud includes:

  • Forging receipts
  • Double claiming for expenses
  • Submitting false reimbursement claims
  • Inflating expense claims

Expense Account Fraud

An employee uses a company expense account for personal expenses, then submits them as business-related. This can also include expense reimbursement fraud, above.

Procurement Fraud

This type of fraud includes schemes such as:

  • Over-ordering product, then returning some and pocketing the refund
  • Purchase order fraud, where the employee “purchases” goods for the company from a fictitious vendor account they create
  • Purchasing goods for personal use/resale

Payment Fraud

The wide umbrella of payment fraud includes:

  • Vendor fraud schemes
  • Creating false customer accounts to generate false payments
  • Altering payee details on checks and payables
  • Self-authorizing payments
  • Colluding with others to process false claims for benefits or payments

Workers’ Compensation Fraud

This type of fraud occurs any time an employee lies in order to collect a workers’ compensation payment. They might:

  • Exaggerate the severity or duration their injuries or disability
  • Invent injuries that did not occur
  • Attribute injuries that occurred outside of the work environment to the workplace

Head over to our “ 31 Warning Signs of Workers’ Compensation Fraud” article for more tips for preventing workers’ compensation fraud.

Health Insurance Fraud

An employee conspires or colludes with health care providers to defraud an insurance company by submitting false or inflated receipts. They could also claim a reimbursement for medical or health services not received.

Commission Fraud

To increase their commission pay-out, an employee might:

  • Inflate their sales numbers
  • Log sales that did not occur
  • Collude with customers to record and collect commissions on falsified sales

Personal Use of Company Vehicle

This is similar to theft of services but involves the employee using a company vehicle for unauthorized personal activities. Often, they also use the company credit card or submit reimbursements for gas fill-ups.

Preventing & Detecting Asset Misappropriation

With so many different schemes under this category, it’s hard to know where to start your preventive efforts. The steps below should deter potential fraudsters regardless of your company’s size or industry.

  • Conduct thorough background checks on candidates before hiring them.
  • Implement checks and balances for financial tasks.
  • Separate the functions of check preparer and check signer.
  • Rotate duties of employees in accounts.
  • Conduct random audits of company accounts.
  • Don’t pay commission until goods are services have been delivered.
  • Keep checks in a locked cabinet and destroy voided checks.
  • Implement an anonymous ethics hotline to encourage employees to report wrongdoing.

Want to detect fraud sooner and prevent future schemes?

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Vendor fraud can be committed by employees acting alone or in collusion with vendors. This type of fraud can also be committed by vendors on their own.

Examples of vendor fraud include:

Billing Schemes

An employee generates false payments to themselves using the company’s vendor payment system. They achieve this by either by creating a fictitious vendor (shell company) or by manipulating the account of an existing vendor (i.e. changing address or bank account number in the file).

Bribery and Kickbacks

An employee accepts (or asks for) payments from a vendor in exchange for an advantage. Bribes and kickbacks are often cash, but could also be guaranteed contracts, discounts, or inventory.

An employee steals checks for payment to a vendor and alters the payee or forges the vendor’s signature to deposit them in his or her personal account.

Overbilling

A vendor pads invoices to charge the company for more goods than it ships or to charge a higher price than was agreed upon.

This can be done in collusion with an employee who receives a kickback, or by the vendor alone to defraud the company.

Price Fixing

Competing vendors work together to set a minimum price or price range. This makes both vendors’ prices appear competitive and ensures the company pays an inflated price no matter which vendor is chosen.

While employees of the company are not usually involved, they sometimes provide information to the vendors about pricing and budgets, often in exchange for kickbacks.

Preventing & Detecting Vendor Fraud

To prevent and detect vendor fraud, you need to diligently analyze your vendor records. Start with this checklist:

  • Complete a vendor risk assessment before signing a new contract.
  • Separate the functions of check preparer and check signer for vendor payments.
  • Rotate duties of employees in procurement.
  • Conduct random audits of vendor files.
  • Business name
  • Tax Identification Number (TIN)
  • Phone number
  • PO box and street address
  • Bank account
  • Contact person
  • Use data mining to uncover anomalies and patterns.
  • Compare vendor addresses with employee addresses.
  • Implement a dual review process for vendor file management.
  • Review vendor files to check that volume of billing is reasonable and consistent.

Step 1: Analyze your vendor files.

To find out what to look for, download our free cheat sheet, "16 Ways to Identify Fictitious Vendors."

Get the Cheat Sheet

Accounting fraud occurs whenever an employee manipulates their company’s accounts. They might do this to cover up theft or use the company’s accounts payable and receivable to steal.

Employees involved in these types of fraud often have access to a company’s accounts with little or no oversight due to their positions.

Accounting fraud includes:

Embezzlement

Also called larceny, this is any fraud conducted by a person who controls the funds being used.

Accounts Payable Fraud

An employee manipulates a payment from their employer so that they receive the funds or another advantage. This could include schemes such as billing fraud, check tampering, and kickbacks.

Accounts payable fraud is among the easiest frauds to perpetrate, since most of the money leaving a company legitimately goes through the accounts payable function. To learn more about AP fraud, visit our  Essential Guide to Accounts Payable Fraud .

Fake Supplier

An employee sets up a fake supplier file and bills the company for good or services not provided. This is most easily carried out in industries with lots of suppliers, such as retail or hospitality.

Personal Purchases

An employee uses company funds to pay for personal purchases and records the payments as legitimate business expenses in the accounting system.

COVID-19 and the rise of remote work have muddied the waters on detecting this type of scheme. It can be hard to determine if a purchase is strictly personal or also work-related, such as office supplies or WiFi access.

Double-Check Fraud

An employee writes a check to pay an invoice, then writes a second check to him/herself. They then record the disbursement in the accounting system as a payment to the same supplier.

Accounts Receivable Fraud

Accounts receivable fraud takes place through many different types of schemes: lapping, fictitious sales, skimming, and more. It occurs whenever an employee manipulates incoming financial records to steal money meant for the company or to inflate the company’s value.

Check out  The Definitive Guide to Accounts Receivable Fraud  for a full look into this type of fraud.

Preventing & Detecting Accounting Fraud

To prevent and detect accounting fraud:

  • Implement tight internal controls on accounting functions.
  • Separate the functions of account setup and approval.
  • Conduct random audits of accounts payable and accounts receivable records.
  • Assign a trusted outside contractor to review and reconcile accounts at regular intervals.
  • Rotate duties of employees in accounts payable and accounts receivable.
  • Make it mandatory for employees to take vacation time.
  • Set up an automated positive pay system to detect fraud.

Don’t let payroll fraud derail your business.

Download our free cheat sheet, "How to Detect Payroll Fraud," for tips on catching these types of schemes early.

Payroll fraud is theft via a company’s payroll system. Small businesses with fewer controls are especially at risk for this type of fraud.

Payroll fraud schemes include:

Ghost Employee Schemes

The fraudster diverts pay from a fake employee or former employee to their own bank account.

Advance Fraud

An employee requests a payroll advance and doesn’t pay it back.

Timesheet Fraud

When committing timesheet fraud, an employee might:

  • Inflate their worked hours on their timesheet
  • Clocks in and/or out for another employee in his or her absence
  • Manually inflates hours on an employee’s timesheet (if they work in the payroll department)

Paycheck Theft

One employee steals another employee’s check and cashes it.

Preventing & Detecting Payroll Fraud

To prevent and detect payroll fraud:

  • Reconcile balance sheets and payroll accounts each quarter.
  • Require managers or supervisors to approve timesheets and overtime claims.
  • Institute mandatory vacations for payroll employees.
  • Restrict payroll department employees’ abilities to modify pay rates and hours.
  • Perform data analytics on payroll records to look for matching addresses, names, bank accounts, etc.
  • Check payroll records to ensure terminated employees have been removed from the payroll.
  • Separate tasks of preparing payroll checks and reconciling payroll account.
  • If you still pay employees by check, hand paychecks to each employee in person, rather than leaving them on their desks.

So you’ve found the fraudster in your organization. Now what?

Download our free cheat sheet: How to Confront Employee Theft.

Data theft or theft of trade secrets can be devastating if your company relies on its intellectual property for its product or service.

This type of theft can also compromise marketing and sales efforts and/or put the company in a precarious position with authorities when personally identifiable information is stolen.

Data theft schemes include:

Trade Secret Theft

Theft of proprietary information to sell to a competitor. This includes everything from formulas and recipes to prototypes and blueprints.

Theft of Customer or Contact Lists

A departing employee copies or downloads lists of the company’s contacts to either sell or use. For example, they might leave to open their own consulting firm and take your customer list to try and poach them.

Theft of Personally Identifiable Information (PID)

An employee steals or shares credit card numbers, bank account numbers, client lists, or other valuable PID to sell to other parties. The PID could belong to either employees of the organization or to customers, vendors, or clients.

Preventing & Detecting Data Theft

To prevent and detect data theft:

  • Restrict access to company proprietary information to only those who need it for their jobs.
  • Set up IT controls to alert management of data downloads or transfers that are large or occur at odd times.
  • Purchase software that alerts management of suspicious activity on a company network, such as an employee trying to access sensitive information.
  • Dispose of confidential information properly, by shredding documents and completely removing data from electronic devices before redeploying or disposing of them.
  • Use strong passwords for all computers and devices that can access sensitive information.
  • Implement a clean-desk policy that prohibits employees from keeping sensitive information on their desks while they are not present.

Your company's sensitive information is too important to risk.

Download our free data theft prevention checklist for more tips on keeping your data safe.

Get the Checklist

Bribery and Corruption

High profile employee frauds, such as bribery and kickbacks, can damage much more than a company’s finances.

The reputational hit from a corruption accusation can deter business, affect employee morale, and even tank your organization’s stock price.

These schemes can include:

An employee pays or provides a benefit to an official to secure an advantage for the company or for the employee.

An employee receives payments or benefits from third parties in return for business advantages or for unauthorized discounts.

Shell Companies

Shell companies (or shell corporations) have no real operations and are simply “ created to hold funds and manage another entity’s financial transaction” (SmartAsset). An employee or company officer may use a shell company to launder money, pay bribes, divert assets, or evade taxes.

Product Substitution

A contractor, acting on its own or in collusion with an employee in the purchasing company, substitutes inferior or counterfeit materials for the materials specified in the contract. Substitutions could include:

  • Products of lower quality or price than purchased
  • Knock-off versions of brand-name products
  • Old or expired products

Preventing & Detecting Bribery and Corruption

To prevent and detect bribery and corruption:

  • Have a strong code of ethics and ensure everyone in the company, from the top down, knows what it says and puts it into practice.
  • Ask the C-suite to set an example, making it clear that bribery and corruption are not tolerated.
  • Consistently discipline employees who breach the company’s code of ethics.
  • Conduct due diligence on all third parties your company does business with.
  • High numbers of tests or failures
  • Unusually high numbers of repairs or replacements
  • Lack of warranty information in packaging
  • Unbranded packaging
  • Products that don’t look like the product ordered
  • Conduct a risk assessment to look for areas of risk
  • Train all employees on bribery and corruption prevention
  • Reward employees for ethical behavior

When you know the red flags of employee fraud, it’s easier to catch schemes sooner. Watch for employees who:

  • Live a lavish lifestyle that doesn’t match their salary
  • Don’t take vacation
  • Routinely stay late, come in early, and/or work on weekends
  • Act reluctant to share their job duties
  • Seem to feel the rules don’t apply to them

In addition, look out for:

  • Inventory shortages
  • A large number of write-offs in accounts receivable
  • Frequent tips/complaints/reports about an employee

The best way to detect employee fraud is through tips, which is why implementing a whistleblower hotline can be the best deterrent. According to the ACFE, the most common detection method is tips, with 47 per cent of frauds being detected this way.

In a company culture that encourages hotline use, every employee becomes the eyes and ears of the company.

1 tool to improve your employee fraud investigations

Knowing how to conduct effective fraud investigations can save your organization time, money, and stress. Learn how in our free eBook.

Get the eBook

If you’re still simply reacting to fraud and theft, you’re putting your organization, your employees, and your reputation at risk.

With Case IQ’s powerful case management software you can increase oversight, track and manage fraud investigations, and report on results for better risk management and prevention.

Case IQ’s award-winning reporting tool highlights trends and hot spots in investigation data, helping you identify your areas of risk. Use this insight to focus preventive measures and improve your program.

Learn more about how Case IQ can improve your organization’s investigations here .

Related Resources

Complying with the cfpb’s regulations for customer complaints, ai ethics in the workplace: how to use ai responsibly in every department.

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Protect your business: 10 types of business fraud to look out for.

Protect Your Business: 10 Types of Business Fraud to Look out For

According to the Association of Certified Fraud Examiners (ACFE), businesses lose around 5% of financial revenue due to fraudulent behavior. While that may sound like a relatively small amount, it definitely adds up! Experts estimate total annual loss around the world at a whopping $3.7 trillion , and this doesn’t even take into consideration the other costs of fraud like a negative reputation and company morale.

Recognizing what fraud looks like is the first step to protecting your business from it. Below are 10 of the most common types of fraud that business owners should check for.

10 Types of Fraudulent Schemes

1. payroll fraud.

Payroll fraud can manifest in a variety of ways. An employee could lie about their productivity, sales or hours worked to get a higher pay. Some may request for a pay advance without any intention of paying it back. Others may even take it a step further by enlisting a co-worker to manipulate their attendance records by clocking in and out for them.

According to most studies, payroll fraud disproportionately affects small businesses because they are less likely to have anti-fraud measures and systems.

How to avoid it: Do background checks on every potential employee. Have managers closely monitor time sheets and use secure automated payroll services.

types of schemes in business

2. Asset Misappropriation/Skimming

Asset misappropriation is one of the most common types of business fraud, but it is also one of the easiest to spot. Watching out for forged checks, missing inventory and accounts that simply don’t add up is key to identifying asset misappropriation. You could also fall victim to skimming, which is the act of taking money from either a customer or the company without recording the transaction.

How to avoid it: Rotate cash-handling staff and do not entrust all financial tasks to one employee.

3. Invoice Fraud Schemes

This type of fraud happens when the fraudster (often an employee in sales or accounting) creates fake invoices to steal money from the business. This could mean invoicing for products and services that were never bought, creating a fake supplier/shell company to funnel the money to, or awarding over-inflated contracts to personal friends and family.

How to avoid it: Cross-check every invoice with actual goods and services purchased. Do comprehensive background checks before approving a new supplier.

4. Financial Statement Fraud

Financial statement fraud involves fudging important numbers like sales, revenues, assets and liabilities . Usually, this is done to dupe investors or the public, manipulate stock or increase bonuses. While this is one of the rarer kinds of business fraud, it is also one of the most damaging.

How to avoid it: Delegate different accounting functions to different employees. Closely examine financial statements for inconsistencies or inaccurate information before publishing.

5. Tax Fraud

Tax fraud (also known as tax evasion) is a type of fraud that happens when an individual or company’s earnings and expenses are misreported to the IRS, often to take advantage of lower tax brackets and special exemptions.

How to avoid it: Do not over-report expenses or under-report earnings. File your taxes completely, accurately and on time.

6. Data, Intellectual Property and Identity Theft

A lot of businesses handle sensitive information, whether personal data or intellectual property (IP). IP theft can damage your business if an employee leaks trade secrets and patents to your competitors. Identity theft can hurt your reputation due to lower customer trust.

How to avoid it: Restrict access to high-level documents. Have a security policy in place for the classification and handling of sensitive information. 

7. Insurance and Banking Fraud

Most companies offer health insurance or workers’ compensation to their employees. Sadly, there are employees who try to profit off insurance by filing false claims or lying about injuries and illnesses, resulting in higher premiums and more out-of-pocket expenses for small business owners.

How to avoid it: Be strict about the requirements for filing insurance claims /workers’ compensation. Check all submitted documents to ensure they’re real.

8. Money Fraud

Money fraud is a type of fraud where a customer uses fake bills to make a real purchase. If you don’t check regularly, you won’t notice the notes are counterfeit until it’s too late.

How to avoid it: Train cash-handling employees on how to check for counterfeit bank notes. Invest in a counterfeit money detector if you handle large amounts of cash regularly.

9. Return Fraud

Many retail businesses have some sort of return, refund or exchange policy that allows customers to send back defective items. Some people take advantage of this by lying about purchases, returning stolen goods, stealing receipts, or using items and then returning them before the return period is up to get their money back.

How to avoid it: Require receipts for all returns and exchanges. In the case of refunds, give store credit instead of cash.

types of schemes in business

10. Bribery and Corruption

Bribery and corruption encompasses a variety of practices such as skimming/getting kickbacks from projects, using money to influence major company decisions, and manipulating contracts to favor some people over others.

How to avoid it: Implement stricter compliance programs and gifting guidelines. Conduct due diligence with all employees, management and third-party vendors.

Other Fraud Risk Protection Tips

  • Make fraud reporting a part of your company culture. Encourage people to report red flags via a safe, anonymous anti-fraud hotline.
  • Have specific and comprehensive anti-fraud, anti-bribery and anti-corruption company policies. Make sure your policies have teeth by implementing the policy and enforcing consequences when an employee violates the agreement.
  • Do surprise audits and inspections regularly. Regular checkups can help you spot fraudulent behavior and mitigate the damage immediately.

Protect Your Business Against Fraud Schemes

No matter the niche or industry, all businesses are vulnerable to fraud if they don’t know how the different kinds of fraud manifest. Once you know what to look out for, you can start the all-important work of creating more effective security measures and mitigating fraud risk in your day-to-day operations.

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What Is Securities Fraud?

Understanding securities fraud, types of securities fraud, examples of securities fraud.

  • Financial Crime & Fraud
  • Definitions M - Z

What Is Securities Fraud? Definition, Main Elements, and Examples

James Chen, CMT is an expert trader, investment adviser, and global market strategist.

types of schemes in business

Securities fraud, also referred to as stock or investment fraud, is a type of serious  white-collar crime  that can be committed in a variety of forms but primarily involves misrepresenting information investors use to make decisions.

The perpetrator of the fraud can be an individual, such as a stockbroker, speculator, financial business leader . It can be an organization, such as a brokerage firm, corporation, or investment bank. Individuals might also commit this type of fraud through schemes such as insider trading.

Key Takeaways

  • Securities fraud is an illegal or unethical activity carried out involving securities or asset markets in order to profit at the expense of others.
  • This type of fraud is a serious crime usually involving the investment world.
  • Examples of securities fraud include Ponzi schemes, pyramid schemes, and late-day trading.
  • Securities fraud can also include false information, pump-and-dump schemes, or trading on insider information.

The Federal Bureau of Investigation (FBI) describes securities fraud as criminal activity that can include high-yield investment fraud, Ponzi schemes, pyramid schemes, advanced fee schemes, foreign currency fraud, broker embezzlement, hedge-fund-related fraud, and late-day trading. In many cases, the fraudster seeks to dupe investors through  misrepresentation  and to manipulate financial markets in some way.

This crime includes providing false information, withholding key information, offering bad advice, and offering or acting on inside information.

Securities fraud takes on many forms. In fact, there is no shortage of methods used to trick investors with false information. High-yield investment fraud, for example, may come with guarantees of high rates of return while claiming there is little to no risk. The investments themselves may be in commodities, securities, real estate, and other categories. Advance fee schemes can follow a more subtle strategy, where the fraudster convinces their targets to advance them small amounts of money that are promised to result in greater returns.

Sometimes the money is requested to cover processing fees and taxes for the funds that allegedly await to be disbursed. Ponzi and pyramid schemes typically draw upon the funds furnished by new investors to pay the returns that were promised to prior investors caught up in the arrangement. Such schemes require the fraudsters to continuously recruit more victims to keep the sham going for as long as possible.

One of the newer types of securities fraud is Internet fraud. This type of scheme is also referred to as a pump-and-dump scheme, in which people use chat rooms and forums to spread false or fraudulent information concerning stocks. The intention is to force a price increase in those stocks—the pump, and then when the price reaches a certain level, they sell them off—the dump.

The FBI warns that security fraud is often noted by unsolicited offers and high-pressure sales tactics on the part of the fraudster, along with demands for personal information such as credit card information and Social Security numbers. The Securities and Exchange Commission (SEC) , the FBI, and other federal and state agencies investigate allegations of securities fraud. The crime can carry both criminal and civil penalties, resulting in imprisonment and fines.

Some common types of securities fraud include manipulating stock prices, lying on SEC filings, and committing accounting fraud. Some famous examples of securities fraud are the Enron, Tyco, Adelphia, and WorldCom scandals.

Here, bad actors try to manipulate the price of a stock for their own gain by spreading false information, often via Internet or newsletter, and then getting out of their position after that false information has been acted upon by unsuspecting investors. For instance, during the summer months of the stock below, a pump and dump scheme was initiated by using a "wrong number" scam. A message was left on victims answering machines that talked of a hot stock tip and was constructed so that the victim would think that the message was an accident.

As seen in the above chart, the price rose from around $0.30 to nearly $1.00, a more than 200% increase in a one-week period. This drastic increase was seen along with an equally large increase in volume. The stock had seen an  average daily trading volume  before the price increase of less than 250,000, but during the scam, the stock traded up to nearly 1 million shares on a number of trading days. The unsuspecting investors would have bought into the stock at around $1.00. As seen above, it fell to around $0.20, an 80% decline in value for those unfortunate investors.

FBI. " Securities Fraud Awareness & Prevention Tips ." Accessed Oct. 21, 2021.

FBI. " Enron ." Accessed Oct. 21, 2021.

Securities and Exchange Commission. " SEC Brings Settled Charges Against Tyco International Ltd. Alleging Billion Dollar Accounting Fraud ." Accessed Oct. 21, 2021.

Securities and Exchange Commission. " Securities and Exchange Commission

Plaintiff, Against Adelphia Communications Corporation, John J. Rigas, Timothy J. Rigas, Michael J. Rigas, James P. Rigas, James R. Brown, and Michael C. Mulcahey,

Defendants ." Accessed Oct. 21, 2021.

Plaintiff, v. WorldCom, Inc. Defendant ." Accessed Oct. 21, 2021.

  • What Is Fraud? Definition, Types, and Consequences 1 of 31
  • What Is White-Collar Crime? Meaning, Types, and Examples 2 of 31
  • What Is Corporate Fraud? Definition, Types, and Example 3 of 31
  • What Is Accounting Fraud? Definition and Examples 4 of 31
  • Financial Statement Manipulation 5 of 31
  • Detecting Financial Statement Fraud 6 of 31
  • What Is Securities Fraud? Definition, Main Elements, and Examples 7 of 31
  • What Is Insider Trading and When Is It Legal? 8 of 31
  • What Is a Pyramid Scheme? How Does It Work? 9 of 31
  • Ponzi Schemes: Definition, Examples, and Origins 10 of 31
  • Ponzi Scheme vs. Pyramid Scheme: What's the Difference? 11 of 31
  • Money Laundering: What It Is and How to Prevent It 12 of 31
  • How Does a Pump-and-Dump Scam Work? 13 of 31
  • Racketeering Definition, State vs. Federal Offenses, and Examples 14 of 31
  • Mortgage Fraud: Understanding and Avoiding It 15 of 31
  • Wire Fraud Laws: Overview, Definition and Examples 16 of 31
  • The Most Common Types of Consumer Fraud 17 of 31
  • Who Is Liable for Credit Card Fraud? 18 of 31
  • How to Avoid Debit Card Fraud 19 of 31
  • The Biggest Stock Scams of Recent Time 20 of 31
  • Enron Scandal: The Fall of a Wall Street Darling 21 of 31
  • Bernie Madoff: Who He Was, How His Ponzi Scheme Worked 22 of 31
  • 5 Most Publicized Ethics Violations by CEOs 23 of 31
  • The Rise and Fall of WorldCom: Story of a Scandal 24 of 31
  • Four Scandalous Insider Trading Incidents 25 of 31
  • What Is the Securities Exchange Act of 1934? Reach and History 26 of 31
  • Securities and Exchange Commission (SEC) Defined, How It Works 27 of 31
  • Financial Crimes Enforcement Network (FinCEN) Overview 28 of 31
  • Anti Money Laundering (AML) Definition: Its History and How It Works 29 of 31
  • Compliance Department: Definition, Role, and Duties 30 of 31
  • Compliance Officer: Definition, Job Duties, and How to Become One 31 of 31

types of schemes in business

  • Terms of Service
  • Editorial Policy
  • Privacy Policy
  • Your Privacy Choices
  • 5.1 Common Business Crimes
  • Introduction
  • 1.1 Basic American Legal Principles
  • 1.2 Sources and Types of Law
  • 1.3 Important Business Laws and Regulations
  • Assessment Questions
  • 2.1 Negotiation
  • 2.2 Mediation
  • 2.3 Arbitration
  • 3.1 Business Ethics
  • 3.2 Social Responsibility
  • 4.1 Commerce Clause
  • 4.2 Constitutional Protections
  • 5.2 Civil vs. Criminal Liability
  • 6.1 Intentional Torts and Negligence
  • 6.2 Product and Strict Liability
  • 7.1 Agreement, Consideration, and Promissory Estoppel
  • 7.2 Capacity and Legality
  • 7.3 Breach of Contract and Remedies
  • 8.1 The Nature and Origins of Sales Contracts
  • 8.2 Warranties and Sales Contracts
  • 9.1 Employment, Worker Protection, and Immigration Law
  • 9.2 Labor Law
  • 9.3 Equal Opportunity in Employment
  • 10.1 Administrative Law
  • 10.2 Regulatory Agencies
  • 11.1 History of Antitrust Law
  • 11.2 Antitrust Laws
  • 12.1 Unfair Trade Practices
  • 12.2 The Federal Trade Commission
  • 13.1 Introduction to International Law
  • 13.2 Sources and Practice of International Law
  • 14.1 Liability Under the Securities Act
  • 14.2 The Framework of Securities Regulation

People rarely think about their conduct at work as being potentially illegal, or that jail time could result from poor workplace decisions. However, this fact is the reality. Organizations are fined, and executives are sentenced to jail, when business laws are broken. Many of the workplace violations are nonviolent crimes, such as fraud, property crimes, or drug- or alcohol-related infractions. Regardless of the level of violence or the employee’s motivation for committing the crime, breaking the law can lead to negative consequences for the business, its employees, and its customers.

Constitutional Authority to Regulate Business

Congress is given the power to “regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” Our forefathers wanted to facilitate easier trade among the states by allowing Congress to adopt rules that could be uniformly applied. The theory was that if commercial enterprises knew that they would be dealing with essentially the same rules across the nation, it would be much easier to run their businesses and keep commerce flowing more efficiently.

While federal courts initially interpreted the commerce power narrowly, over time, the federal courts have decided that the commerce clause gives the federal government broad powers to regulate commerce, not only on an interstate (between the states) level, but also on an intrastate (within each state) level, as long as some economic transaction is involved. The federal government does not usually exceed its regulatory powers.

White Collar Crime

White collar crimes are characterized by deceit, concealment, or violation of trust. They are committed by business professionals. They generally involve fraud, and the employees committing the crimes are motivated by the desire for financial gains or fear of losing business standing, money, or property. Fraud is the intentional misrepresentation of material facts for monetary gain. This type of crime is not dependent on threats or violence.

White collar crimes tend to violate state laws, and sometimes federal laws. The violation depends on what is involved in the crime. For instance, criminal acts involving the United States postal system or interstate commerce violate federal law.

Although white collar crimes do not need to include physical violence, these types of crimes can destroy companies, the environment, and the financial stability of clients, employees, and communities. In 2018, Jeremiah Hand and his brothers, Jehu Hand and Adam Hand, were convicted and sentenced to between 9 and 30 months in prison for their respective roles in a pump-and-dump scheme. In this scheme, they were dishonest about control over their company’s stock, and even went as far as filing false forms in an effort to raise the value of the stock. Once the value of the stock was raised, they released their shares into the market.

Types of Business Crimes

Business crimes or white collar crimes are not limited to pump-and-dump schemes; they come in many different forms. As previously stated, these crimes often involve deceit, fraud, or misinformation. The types of high-profile crimes include Ponzi schemes, embezzlement, and crimes that intentionally violate environmental laws and regulations. This section will explore these three types of crimes and provide examples from the 2000s.

Ponzi Schemes

Ponzi schemes (also known as pyramid schemes) are investing scams that promise investors low-risk investment opportunities with a high rate of return. The high rates are paid to old investors with money acquired from the acquisition of new investors. The performance of the market is not a factor in the investors' rate of return.

Bernie Madoff operated a 20-year Ponzi scheme through his company. He paid high returns (above average) using the investments of new clients (investors). In 2008, investors attempted to withdraw funds, but the Madoff organization was not able to provide the reimbursement. Madoff is currently serving a more than 100-year sentence in prison.

Larceny and Embezzlement

Larceny and embezzlement are two forms of theft that can occur within a business. Larceny occurs when a person unlawfully takes the personal property of another person or a business. For example, if an employee takes another employee’s computer with the intent of stealing it, he or she may be guilty of larceny. In contrast, embezzlement occurs when a person has been entrusted with an item of value and then refuses to return it or does not return the item. For example, if an employee is entrusted with the petty cash at his or her office and that person purposefully takes some of the money for himself or herself, this would be embezzlement.

One high-profile example of embezzlement occurred at Koss Corporation in Milwaukee, Wisconsin. Sujata “Sue” Sachdeva was a Vice President of Finance and Principal Accounting Officer at Koss Corporation. Sachdeva was convicted of embezzling $34 million over a 5-year period and sentenced to 11 years in federal prison, as well as restitution to Koss Corporation. Sachdeva was entrusted with the company’s funds and did not utilize the funds as intended.

Environmental Crimes

Many federal statutes regulate the environment. Many of these laws carry both civil and criminal penalties for violations.

The following federal laws can carry criminal penalties:

  • Clean Air Act
  • Clean Water Act
  • Resource Conservation and Recovery Act
  • Comprehensive Environmental Response, Compensation and Liability Act
  • Endangered Species Act

The International Petroleum Corporation of Delaware (IPC) is paying restitution for environmental crimes, which included a scheme to violate the Clean Water Act. From 1992 to 2012, IPC processed oil and wastewater. The company admitted to altering required water test samples so they met the limits set by their permit before releasing the waste into the city’s sewer system. The company also admitted to transporting waste that contained benzene, barium, chromium, cadmium, lead, PCE, and trichloroethene for disposal in South Carolina without the required reporting of the information, which also violated environmental laws.

Other Types of Business Crime

The business environment is complex, and some crimes are less common or receive less media attention. These types of crimes include those that violate antitrust laws, racketeering, bribery, money laundering, and spamming.

Violations of Antitrust Laws

Antitrust laws do not allow activities that restrain trade or promote market domination. These laws are in place to provide guidance and supervision of mergers and acquisitions of companies to prevent market abuse. The goal is to avoid monopolies , or the control of one organization over a specific market. Monopolies reduce competition and, as a result, can have a detrimental impact on consumer prices. Since the United States is founded on capitalist principles, anti-competitive business conduct is prohibited by law, and some of those laws, such as the Sherman Antitrust Act, do include provisions about criminal punishment.

Racketeering

Racketeering activities include loan-sharking, money laundering, and blackmailing. In the past, the term has been used to describe organized crime. The term is now applied to other entities, as well. RICO, or the Racketeer Influenced and Corrupt Organizations Act, is a federal law aimed at preventing and prosecuting by both businesses and organized crime syndicates. “RICO is now used against insurance companies, stock brokerages, tobacco companies, banks, and other large commercial enterprises.” (Schodolski, 2018). Racketeering is no longer limited to organized crime. Health insurance companies and other legitimate businesses are being accused of pressure tactics similar to those used in organized crime racketeering. These claims involve allegations of lying about the actual cost of care, damaging the business for physicians, bullying patients, and attempting to control the doctor-patient relationship through lies and pressure tactics.

Bribery occurs when monetary payments, goods, services, information, or anything of value is exchanged for favorable or desired actions. You can be charged with bribery for offering a bribe, or taking a bribe. Bribery is illegal within the United States and outside of it. The Foreign Corrupt Practices Act prohibits bribery payments by U.S. companies to foreign government officials with an intent to influence foreign business results. One example of bribery would be a situation in which a pharmaceutical company offers special benefits to individuals who agree to prescribe their medications.

Money Laundering

Money laundering refers to taking “dirty”money, or money obtained through criminal activities, and passing it through otherwise legitimate businesses so that it appears “clean.” The money cannot be tied back to the illegal acts. Clean money is money that was obtained through legitimate business functions.

Sending unsolicited commercial email, or spam , is illegal. While the onus is on consumers to avail themselves of whatever programs they can to block spam, laws are in place to discourage the sending of spam. The following points are outlined in the anti-spam legislation in Washington state and are similar to other legislation:

  • Individuals may not initiate the sending or plan the sending of an email that misrepresents the sender as someone he or she is not, represents the sender as being associated with an organization that he or she has no association, or otherwise hides the identity of the sender or origin of the email. Email messages may not have false or misleading information in the subject line of the message.
  • Commercial emails must include the contact information of the sender and the receiver must be aware that the message is from a commercial source.

States like Washington are putting legislation in place to reduce spam and asking consumers to take an active role in addressing spam. In general, legislators realize that spam is a nuisance and are finding ways to hold companies liable for sending spam messages.

It is important to know that not all people charged with business crimes or white collar crimes are necessarily guilty. A person must be found guilty of the crime before he or she is convicted. Regardless, business crimes and white collar crimes negatively impact the individual, the organization he or she worked for, the community, and customers.

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  • Authors: Mirande Valbrune, Renee De Assis
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Nisos

15 Common Types of Business Fraud

by Landon Winkelvoss | Jul 21, 2023 | Blog , Trust and Safety

Fraud is a constant thorn in the side of many enterprises. It affects not only their operations and their revenue. Fraud schemes compromise their employees and their customers.

We have seen multiple versions of these fraudulent activities in our analyst-led threat intelligence investigations. To proactively defend your platforms, people, and property – education is the first step.

Here are some of the most common fraudulent activities perpetrated against businesses.

Financial Fraud

1. Credit Card Fraud:

Credit card fraud involves hackers fraudulently acquiring people’s credit or debit card details in an attempt to steal money or make purchases. To obtain these details, internet fraudsters often use credit cards or bank loan deals to lure victims. For example, a victim might receive a message from “their bank” telling them they are eligible for a special loan deal or a vast amount of money has been made available to them as a loan. 

These scams continue to trick people despite widespread awareness that such offers are too good to be true for a reason. Unfortunately, there are multiple victims of this fraud – the consumer who may become the victim of theft, and the business who loses the faith of the consumer.

2. Chargeback Fraud:

Chargeback fraud, often called friendly fraud, is when bad actors fraudulently attempt to secure a refund using the chargeback process. Instead of contacting the merchant directly for a refund, they will dispute the transaction with their bank and this will begin the chargeback process.

Operational Control Fraud

3. SIM Swap Scam:

SIM swap scams are a type of account takeover fraud. Known also as SIM splitting, smishing, simjacking, SIM swapping, or a port-out scam – this operational control fraud is used to target users with weak multi-factor authentication. Typically the second factor is a text message or a call placed to a mobile device.

What happens is a bad actor uses a phone service provider’s power and control over devices on their network to seamlessly port a phone number to a new device containing a different SIM card. 

The scam begins with a bad actor gathering personal details about an individual. Then, they use social engineering to manipulate the mobile carrier and convince them to port the victim’s phone number to the fraudster’s SIM. Once the port has been completed, the victim’s phone will lose connection to their network. Next, the bad actor will use their newly established control to take phone calls and receive text messages on behalf of the victim. 

This is especially detrimental when they are intercepting passcodes and resets. It is part of a financial crime that can be used to transfer victims’ funds from bank accounts and more.

4. Identity Theft and Account Takeover:

Identity threat is a common type of fraud people unknowingly fall victim to. This happens when someone’s personal information is stolen by scammers so they can open a new bank account or apply for a loan or credit card.

This impacts both consumers and businesses as both become victims, but businesses will typically prevail upon “the customer” to “repay” the debts created, regardless of the creator of the debt.

A subtype of account takeovers is account farming, which involves the creation, development, and maturing of financial accounts. These account abusers may be focused on running disinformation campaigns or conducting social engineering.

5. Tech Support Fake Virus Warning Scams:

Fake virus warning scams are a type of tech support fraud that occurs when a scammer emails or calls a consumer with a “warning notice”. This scam is operational control and consumer manipulation. 

These tech support scams can also start by a pop up that indicates the computer has been compromised. Once the notice has been deployed and the consumer has requested support from the scammer, the scammer remotely instructs the consumer to download an actual virus or other type of malware. 

Confirming then that there is an issue, the fraudster indicates that resolution can only be possible once they agree to pay a fee. This type of fraud causes extra work on the part of businesses to communicate with consumers the ways and contact methods that they will use to engage their consumer. You’ve surely seen notices from your bank telling you that they will never ask you for your PIN.

Employee-Targeted Fraud

6. Phishing and Spoofing:

When email and online messaging services are used to mislead people into sharing sensitive information, such as personal data, login credentials, and financial information. 

One approach is when a hacker compromises a legitimate business website or creates a fake website. After acquiring a list of email addresses, they send out a campaign that dupes people into clicking on a malicious link. When that person is taken to the fake website they are prompted to insert their login credentials. This valid data is then used by the hacker to access the user’s real online accounts.

7. Work from Home Fraud:

Work from home fraud is a growing concern for many seeking employment. This type of fraud can take many forms, but one of the most prevalent ways that it occurs is when scammers target employment seekers and ask them to deposit funds for a job kit.

This kit is supposed to be useful for the work they are seeking. However, after the money is deposited, there will be no track of the employer. In this type of work from home fraud, they often target customer service support or call center positions.

Another type of work from home fraud is when fraudsters take personal information stolen from other people to apply for jobs at IT, programming, database, and software firms. These positions may have access to sensitive customer data along with financial and proprietary company info which suggests they could be intending to steal sensitive information as well as collect fraudulent paychecks.

These applicants may use a variety of techniques, including voice spoofing during an interview or online video call, to appear more genuine which can make them more difficult to detect.

8. Business Email Compromise (BEC):

BEC attacks have become increasingly common in recent years.  This type of attack targets businesses that frequently make wire payments, and involves compromising legitimate email accounts through social engineering techniques in order to submit unauthorized payments.

Consumer-Targeted Fraud

9. Online Shopping Fraud:

There are a lot of great deals that can be found when you shop online. However, there are also dangers that can be found when shopping online. 

Scammers will set up an online storefront and display quality or highly sought-after merchandise, and will list these products far below the normal asking rate, or will list them with steep discounts. Once an unknowing shopper makes a purchase from these kinds of retailers, they will either receive a fake, low-quality product, or nothing at all.

10. Rewards Point Fraud:

Credit card and retail companies are constantly looking for ways to increase the number of customers that sign up for and use their cards. One way they go about this is by providing rewards points that can be redeemed on various items or services. However, bad actors have taken note of this and utilize these reward points to get customer information and steal money or goods.

These scammers will target customers who have rewards points on their card, and call them claiming to be from the credit card company, informing them that they have rewards that they need to redeem before the points expire. The scammers will urge customers to redeem the points, and will ask them to provide their card details along with OTP. The scammers then collect this information, and use it to make fraudulent transactions.

11. Social Media Fraud:

As the number of people using social media grows, the amount of fraud committed through social media grows too. Cyberbullying is one of the most common and destructive types of social media fraud, affecting teenagers in particular. Through cyberbullying, fraudsters use social media sites to bully people and extort money from them. 

Some other ways fraud occurs through social media sites are:

  • Bulk fake account creation: This occurs when scammers create tools to create fake accounts in bulk that are usually sold for resale on the dark web or closed forums.
  • Token Abuse: App token abuse targeting social media companies using OAuth access.
  • Scaled Compromise: This occurs when scammers use scripted automated tools or malware to target social media companies and their entire user base. 
  • Hacked Accounts: This occurs when scammers hack into a user account and use the information obtained to trick friends of the user into giving them money. Often the scammer will  also use a link to get the friend’s information to hack into their account. 

12. Credential Stuffing from Data Breach:

Credential stuffing is a type of cyber attack where stolen usernames and passwords are used to gain access to accounts on other websites. Credential stuffing can occur after a data breach, where hackers obtain a large number of usernames and passwords. The hackers can then use automation tools to try these credentials on other websites. This type of attack is possible because many people use the same usernames and passwords for multiple accounts. 

Credential stuffing can be a serious problem for online retailers and other businesses. Hackers may use information gathered from one data breach to try to gain access to accounts on another site. They may also attempt to guess passwords and other profile credentials utilizing context clues found on public social media pages such as birthdays or anniversaries. This can lead to serious security problems for the companies involved and may even result in financial losses.

To protect against credential stuffing, companies should implement strong security measures such as two-factor authentication and frequent password changes. They should also monitor their systems closely for any suspicious activity.

13. Travel Scams:

When planning your next vacation, beware of scammers who may be lurking on social media sites. Travel scams often occur when scammers post enticing photos that trick even the savviest of travelers. The scammers post enticing photos for free trips or plane tickets, which lure people into clicking on them.

Once clicked, victims are either prompted to complete a survey that asks for personal information, or their computer is infected with malicious software. Scammers have also been selling phony COVID-19 travel insurance policies that claim to cover losses for any reason, at no extra cost.

Protect yourself from these scammers by being aware of their tactics and never clicking on links or giving out personal information unless you are absolutely sure it is safe to do so.

14. Money Mules:

When criminals need to launder money or product, they often recruit money mules to help. Money and product mules add layers of distance between crime victims and criminals, which makes it harder for law enforcement to accurately trace the money trail. Criminals may target unsuspecting individuals through job postings or online ads promising easy money. They may also approach people who have a history of financial problems or those who are in a vulnerable situation.

Once recruited, money mules may be asked to open bank accounts, receive and transfer money, or ship product. They may also be asked to provide personal information that can be used to commit identity theft. Money mules typically get a cut of the proceeds from the crime. However, they may also face legal penalties, including jail time.

3 Types of Money or Product Mules:  

  • Unwitting or Unknowing: Individuals unaware they are part of a larger scheme. 
  • Witting: Individuals who ignore obvious red flags or willingly act blind to their money or product movement activity.
  • Complicit: Individuals are aware of their role and activity participation.

15. Tax Scams:

Tax season is a time when many taxpayers eagerly await their tax refunds. Unfortunately, it is also a time when scammers attempt to take advantage of unsuspecting people with tax fraud scams. One common scam is sending fake refund notifications via SMS or email, claiming to be from the income tax department. These messages often contain requests for personal information such as login details for the IT Department website or bank account information.

By providing this sensitive information, scammers can gain access to people’s accounts and steal their hard-earned money. Taxpayers should be on the lookout for these scams and never provide personal information to anyone unless they are absolutely sure that it is safe to do so. If you have any doubts, it is always best to contact the relevant authorities directly to verify the authenticity of the message before taking any further action.

The hyper-scale nature of modern-day fraud makes fraud prevention difficult. While there are numerous technical solutions, most focus on one or two types of fraud and won’t be enough in the long run. Fraudsters can change their tactics quickly depending upon what they think will work best for them. So to prevent becoming a target, we need to continuously evolve to make it difficult and time-consuming to be a target, so the fraudster moves on. 

To really tackle these issues head on we need insight from managed intelligence providers who can help organizations and individuals make themselves harder targets so that criminals move on to another target.

About Nisos®

Nisos is The Managed Intelligence Company®. Our services enable security, intelligence, and trust and safety teams to leverage a world-class intelligence capability tailored to their needs. We fuse robust data collection with a deep understanding of the adversarial mindset delivering smarter defense and more effective response against advanced cyber attacks, disinformation, and abuse of digital platforms.

Table of Contents

Types of Financial Schemes and Scams

types of schemes in business

When thinking about scams, most people think, “That will never happen to me,” “How did someone fall for that,” or “Why would someone send money or handle their finances like that? ”. But the truth is, most people don’t see it coming. The worst part about scams is what makes them so successful: you won’t know it’s happening until it’s too late. Then come the effects of being scammed which extend far beyond the loss of time, money and the possibility of your contact information being sold to other scammers. In extreme cases, the scam that unknowingly traps you might be engaging in criminal activity, meaning you can be charged as a criminal for it too.

Don’t be the person who thought “It will never happen to me.” Instead, take the time to understand some of the most common scams and schemes to learn how to protect yourself against them.

Pyramid Schemes

Pyramid schemes are a step above the typical scam. A pyramid scheme relies on recruiting new money and people, who then “need to” recruit additional money and people. A true pyramid scheme is a business in which the only income is from new recruits who provide earnings to those who have been in the scheme longer. Once the pool of new candidates are exhausted the scheme collapses. These types of investments are highly illegal.

Work-At-Home Scams

We all know the “But wait, there’s more!” slogan when it comes to infomercials, but what about the ads that say “Make lots of money working from the comfort of your home”? Unlike the infomercials, these ads are most likely scams. Work-at-Home scams are known for promoting or marketing work just to take your money, not pay you the money. The promoter will charge you fees, charge you for products or make you purchase inventory or equipment and then fail to provide you with any real income potential. These scams cause a detrimental loss of money.

Advance-Fee Schemes

An advance-fee scheme is when someone contacts you usually by email, phone or mail, and convinces you are eligible for a larger sum of money, but you need to pay them an advance fee in return for access to the money. These scams are usually something of greater value like lottery winnings, “found money” or various products. The schemer usually offers a financing arrangement with a “fee” acting as a finder’s fee. As the scheme progresses you will soon learn you’re not eligible for the money and will not be reimbursed for the fees you paid.

Money Transfer Schemes

A money transfer scheme is quite similar to an advance-fee scheme, except here the scammer promises to transfer money to you via your bank account, tells you to keep a small “commission” and then asks you transfer a portion to some other party. While the “commission” sounds incentivizing, the scammer only wants access to your bank account information so they can illegally transfer your funds. The transfers are difficult to trace, and usually, the lost money will never be found.

Telemarketing Scams

How many times have you picked up a phone call from an unknown number? Following that call, chances are you blocked those numbers or put yourself on a “do not call” list. No matter how many times you put yourself on that list, phone scammers may have already grabbed a vast amount of information about you from other telemarketers, making it quite easy for them to contact and scam you. Best way to avoid these scams: don’t answer calls from unknown numbers. It if is a valid call, the caller will leave a voicemail message.

Investment Scams

Time after time, we hear about the big, bad investment scams that most just shake their heads at and wonder why no one saw the ridiculousness happening sooner. No matter how you prepare, investment scams seem to always persist. The reason for this – they work. Investment scams take on many forms, some being more destructive and some are smaller, less likely to be detected early. Investment scammers are smart, but it’s important to educate yourself so you can outsmart the scam and keep your finances secure. Ask lots of questions, and insist on seeing the investment literature before investing. There are many government agencies who can help you avoid these scams.

Be careful, educate yourself on the different scams and when it comes to your finances, make sure you have all of the facts prior to agreeing to anything. As the saying goes, the best defense is a strong offense. Build your offense with financial knowledge, plans, and skills to protect your finances against scammers. Never feel rushed into making an investment decision.

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ASL

A Look at Occupational Fraud in Nonprofits

There’s a soft spot in many hearts for nonprofit organizations as they pursue their worthy cultural, scientific, civic, medical, social, and recreational missions. So, it’s especially upsetting when nonprofits are the targets of fraud, and doubly sad when the perpetrator is an employee.

According to the Association of Certified Fraud Examiners Report to the Nations: 2020 Study on Occupational Fraud and Abuse , occupational fraud—which is fraud committed by employees against employers—is among the costliest types of financial fraud. The organization estimates that 5 percent of revenues are lost to fraud each year.

Of course, nonprofits are not exempt from this crime. In fact, the ACFE says nonprofit organizations can be more susceptible to fraud because they often have fewer resources to prevent and detect losses, less oversight, and a lack of certain internal controls.

Th ree Types of Schemes

Three types of schemes account for 94 percent of occupational fraud aimed at nonprofits. ACFE research indicates that the median duration of fraud is 14 months and that quick detection is key to reducing financial losses.

For nonprofit organizations, corruption is the most common fraud scheme, accounting for 41 percent of cases. Corruption includes bribery, illegal gratuities, economic extortion, and conflicts of interest such as purchasing and sales schemes.

Thirty percent of cases involving nonprofit organizations involve billing schemes, which include personal purchases, shell companies, and invoices from non-accomplice vendors.

Expense reimbursement fraud accounts for 23 percent of cases examined. These schemes include mischaracterized, overstated, and fictitious expenses, as well as multiple reimbursements.

Who Are the Perpetrators?

The higher ranking the perpetrator, the greater the loss. Losses also increase with the employee’s tenure. There’s also a correlation between the perpetrator’s level of education and median loss—the higher the degree the greater the loss.

People in the owner/executive role account for 39 percent of cases and cause median losses of $250,000. Those at the manager/supervisor level perpetrate 35 percent of cases and cause median losses of $95,000. Lower-level employees account for 23 percent of cases and cause median losses of $21,000.

More than 70 percent of fraudsters are men, and men cause significantly greater median losses than women. Fifty-three percent are between the ages of 31 and 45.

Nonprofit Weaknesses

The ACFE identified three top control weaknesses that leave nonprofit organizations particularly susceptible to occupational fraud: a lack of internal controls and management review and overrides of existing internal controls.

In addition, nonprofit organizations have fewer controls in place compared to other organizations. For example, nonprofits are less likely to have an internal audit department, formal fraud risk assessments, and surprise audits.

Interestingly, the lowest-tech fraud detection method is the most common, with 40 percent of fraud schemes uncovered by a simple tip or complaint. This is nearly three times more common as the next-most-common method, which is via internal audit.

Using tip hotlines is a particularly effective way of lowering losses and speeding detection, and fraud awareness training increases the likelihood of detection by tip. Telephone hotlines, email, and online forms are all equally attractive to whistleblowers when it comes to submitting tips.

Nonprofit organizations work hard for every penny, and your donors are counting on you to be responsible stewards of their donations. Form 990 asks if the organization became aware of a significant diversion of assets. Also, the loss may be considered an excess benefit transaction, which carries a 25 percent tax, which could increase to 200 percent if not corrected in a timely manner. For private foundations, this may be considered a self-dealing transaction. The IRS may also select the Form 990 for audit.

Don’t wait for something bad to happen. Contact our Nonprofit Group and they would be happy to share their input on fraud deterrence.

Source: ACFE 2020 Report to the Nations

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Knowledge Hub for Growth

How to attract investors to your start-up business via a tax-efficient investment scheme.

Jas Bhogal

At Harper James, we specialise in providing  legal advice to start-up businesses . Many of our clients want to know how to raise funding to grow, for example, they may need to acquire premises, build IT infrastructure or just need working capital while their business expands.

Equally, for our more established clients looking to scale their businesses, the question of funding and which kind of investor to target is a key concern, particularly in an increasingly volatile market.

In this article, we explore the different types of investment scheme, and which one might be suitable for your business.

Conditions the VCT must meet

If you think your company is eligible under one of the investment schemes, what are the next steps, why you need to know about different types of funding and investors.

The UK has a variety of investment schemes that are designed to help small business attract funding. If you’re the founder or CEO of a start-up looking for finance, it’s a good idea to understand the different types of investment schemes so that you can identify which might be the best fit for your business, and what type of investor might interested in funding it.

Venture capital investment schemes are designed to attract investors in start-ups and unlisted SMEs. They offer tax relief to investors who are prepared to provide funding to businesses with a higher level of perceived risk (on account of being new or small).  

Understanding what drives potential investors is very important if you’re looking to attract funding via venture capital investment scheme such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) , Social Investment Tax Relief (SITR) and Venture Capital Trust Investment scheme (VCT). These schemes offer tax reliefs to individuals who buy and hold investments for a specific period of time.

As well as tailoring your  pitch  to suit the needs of investors who wish to benefit from the schemes, it’s also be possible to target individuals who are not aware of the tax reliefs available and entice them to invest for a potentially greater return than they might receive from traditional investments.

However, there are certain requirements that must be met before a company, investor or a proposed investment can qualify for these schemes.

Different types of tax-advantaged venture capital schemes:

The table below sets out four different types of venture capital schemes:

Background to EIS, SEIS, SITR and VCT investment schemes

These investment schemes were designed to promote growth in the economy by providing tax relief to private investors. They’re geared towards start-ups, SMEs and social enterprises. It’s the potential for rapid capital growth that attracts investors, plus the tax advantages that are tied to the schemes that have the net effect of reducing the level of risk.

On top of the income tax relief available to investors in these schemes, any gains from eligible investments can also be exempt from capital gains tax (CGT) provided certain scheme conditions are met. What’s more, provided the scheme criteria are met, eligible investments are exempt from inheritance tax.

How do the investment schemes work?

The net effect of these investment schemes is that investors can reduce the amount of their capital that’s at risk to a sum that is less than the amount invested. This has historically proved to be a huge incentive for investors to use the schemes.

On top of the income tax and loss relief benefits, profits from eligible investments are exempt from CGT as long as the shares are held in accordance with the scheme requirements.

To benefit from income tax relief, the shares must be newly issued and paid for in cash. For example, if an angel invests £10,000 into an EIS company, their capital at risk, after the tax relief at 30%, would be just £7,000. If the shares increase in value to £20,000 then the increase in value of £10,000 would be exempt from CGT.

Looked at another way, the investor whose shares double in value has almost trebled their initial investment. And if the company goes bust, then the investor’s losses, rather than being the £10,000 initial investment, could be reduced by over half bearing in mind the initial income tax relief and further loss relief available. 

Key criteria for each investment scheme

The table below sets out an overview of some of the key criteria for each of the schemes:

Note: A ‘knowledge-intensive company’ is a company whose costs of research and development or innovation are at least 15% of its operating costs in at least one of the previous three years, or at least 10% in each of the previous 3 years (the 3 years ending immediately before the company’s last accounts); and either:

  • it is engaged in intellectual property creation that is expected, within 10 years, to comprise the greater part of it or its group business; or
  • it has employees with a relevant master’s or higher degree who are engaged in research and development or innovation and who comprise at least 20% of its total full-time equivalent workforce

What’s the difference between individual investing and investing via a Venture Capital Trust?

The EIS, SEIS and SITR schemes are designed for private individuals wanting to invest directly in small and social enterprises. Some investors prefer to spread their risk and choose instead to invest via a Venture Capital Trust (VCT) that itself invests in eligible smaller businesses, thus offering access to a larger portfolio.

Under a VCT, individual investors buy shares in a quoted company (the VCT), who uses those funds to buy the shares of (or lend money to) unquoted companies. The VCT passes the tax relief available onto the investor, who also benefits from CGT relief on any gains, as well as tax-free dividends.

The VCT must be approved by HMRC and must meet a variety of conditions during the relevant accounting period in which the application for approval is made:

  • The VCT’s ordinary shares must be listed in the Official List of the London Stock Exchange or admitted to trading on an EU Regulated Market (not AIM).
  • The VCT cannot be a close company (the definition of close company is complex, but it is essentially a UK resident company with a small number of shareholders/directors).
  • The VCT must get most or all its income from shares or securities and must distribute at least 85% of its income from shares or securities.
  • The VCT must not have more than 15% of the value of the VCT’s total investments in any one company.
  • At least 80% of the investments made by the VCT must be in eligible companies carrying on a qualified trade.

Conditions imposed on individual investors in venture capital investment schemes

Investors looking to benefit from the EIS, SEIS, SITR and VCT must meet certain criteria as set out in the table below:

Eligibility criteria for your company to qualify under the EIS, SEIS, SITR or VCT schemes

Your business or social enterprise will need to meet certain criteria if it’s to be eligible as a qualifying investment under the schemes.

Usually your company needs to have a permanent office in the UK, and not be listed on a stock exchange (AIM excepted).

You company cannot be controlled by another company, must carry out a certain type of trade (called a ‘qualifying trade’) and must plan to spend the investment money it receives under the scheme on a qualifying trade.

Qualifying trades include most common types of businesses, but there are exceptions such as energy production, land deals, legal and financial services, farming and financial services.

Make sure you understand what constitutes a qualifying and non-qualifying trade before you apply to be qualified for investment. There are some differences between the various schemes, for example, legal and accountancy activities are permitted under the SITR scheme whereas they aren’t under the EIS scheme.

Here is an overview of some of the criteria your business must meet to be eligible for specific investment schemes:

This article provides an insight into some of the various investment schemes available. If you feel that you would like to pitch to investors, or ensure that your company qualifies under a particular scheme, why not contact our  corporate solicitors  who have experience advising on these schemes? You might also find our additional  advice on financing your business  via investment useful.

You can apply to HMRC for ‘advance assurance’ so that investors will know that your company qualifies. Take legal advice to ensure that your application is in the correct format.

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  • Pay Schemes - Definition and Examples

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  • Introduction

Pay Schemes: Definition; Time Rate; Piece Rate; Merrick; Gantt; Halsey Premium; Halsey Weir; Rowan And Barth  

The following are the EIGHT pay schemes adopted by most of the firms in any country. Each pay scheme is explained in details as per the respective articles for each type of pay scheme. They are;

2.1 Time Rate Method

2.1.1 Definition:

Time Rate Method is an approach for computing labor cost which is based on the time taken at work place whether one has actually utilized the time for productive output or not. The employees are paid based on the time rate set for the amount of time they spend at work . The rates are on either weekly or monthly basis which is termed as the standard working time and can for instance be either 35 or 40 hours per week.

2.2 Piece Rate Payment System

2.2.1 Definition:

Piece Rate Payment system is a method of computing the labor cost for the employees which is pegged on the pieces an individual employee produces within a given period. This formula is categorized in to two broad types, namely:

Straight piece rate system and

Differential piece rate system

a). Piece Rate Payment System- Straight Rate Method

Definition:

Straight Rate Method is a Piece Rate Payment System affiliated approach which entails a piece rate which is set per piece of work or output produced and the total number of the units produced.

When using Straight Rate Method, the time taken does not matter for this is a scheme where payment of the employees is pegged on results/output. In other words, the method advocates for worker’s efficiency. The intention of the developers of this method was to overcome the challenges faced in the case of Time Rate Method which focuses much on time worked which may not really be the exact time worked.

b). Piece Rate Payment System-Differential Piece Rate System (by F.W. Taylor)

Differential Piece Rate System is a Piece Rate Payment System affiliated approach is a method of computing labor cost where by an employee is paid at a higher wage rate for completing the job within a shorter time set or expected time. To the contrary, an employee is paid less if he or she takes more time than the set or expected time to complete the same job. The method was developed by F.W. Taylor.

2.3 Merrick Differential Piece-Rate System

Definition: 

Merrick Differential Piece-Rate System is methodology where by the employer pays the inefficient employee a minimum amount of income wage even if he or she accomplishes production of the expected output past the set or predetermined period.

Merrick Differential Piece-Rate System is Taylor’s differential piece-rate system modification which was developed by Merrick to solve the harsh and discriminative Taylor’s method of rewarding of employees.

2.4 Gantt Task Bonus Plan

Gantt Task Bonus Plan is a wage incentive method of rewarding the employees who outperform the expected set output by the organization. In this case, high task efficiency is maintained by providing a bonus expressed in percentage form as a recompence for producing extra above the set standard output.

2.5 Halsey Premium Plan (Halsey, Doolittle, and Emerson)

Halsey Premium Plan is an incentive scheme where by the employer sets a standard time such that when the worker is undertaking the task, he or she adheres to it when doing each job or operation but then the worker is given wages for the actual time, he or she takes to complete the job or operation at the agreed rate per hour plus a bonus equal to (usually) one-half (50% of the time saved) of the wages of the time saved.

2.6 Halsey-Weir Plan (A modified Halsey Premium Plan )

Halsey-Weir Plan is a scheme or employee rewarding methodology which is pegged on rewarding of the employees with some bonus for finishing the task before the time limit.  Generally, the bonus set aside is a percentage of the wages gotten by the employee.

2.7 Rowan System

Rowan System is a plan for rewarding employees where by the method advocates that an employee be paid according to the time rate set if he or she takes more than the set period to finish the task. But a bonus is tied on one’s salary if the same task is accomplished within a shorter time than stipulated.

2.8 Barth Variable Sharing Plan (by Barth and Co)

Barth Variable Sharing Plan is a rewarding scheme where by the employer does not promise to pay anything extra amount to the employee even if the latter has worked overtime. So, this approach does not give a time rate guarantee to the worker. This implies that workers are only paid for the standard hours. 

types of schemes in business

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Newly released Federal Trade Commission data show that consumers reported losing more than $10 billion to fraud in 2023, marking the first time that fraud losses have reached that benchmark. This marks a 14% increase over reported losses in 2022.

Consumers reported losing more money to investment scams—more than $4.6 billion—than any other category in 2023. That amount represents a 21% increase over 2022. The second highest reported loss amount came from imposter scams, with losses of nearly $2.7 billion reported. In 2023, consumers reported losing more money to bank transfers and cryptocurrency than all other methods combined.

"Digital tools are making it easier than ever to target hard-working Americans, and we see the effects of that in the data we're releasing today,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The FTC is working hard to take action against those scams."

types of schemes in business

Online shopping issues were the second most commonly reported in the fraud category, followed by prizes, sweepstakes, and lotteries; investment-related reports; and business and job opportunity scams.

Another first is the method scammers reportedly used to reach consumers most commonly in 2023: email. Email displaced text messages, which held the top spot in 2022 after decades of phone calls being the most common. Phone calls are the second most commonly reported contact method for fraud in 2023, followed by text messages.

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  • Leading the largest-ever crackdown on illegal telemarketing : The FTC joined more than 100 federal and state law enforcement partners nationwide, including the attorneys general from all 50 states and the District of Columbia in Operation Stop Scam Calls , a crackdown on illegal telemarketing calls involving more than 180 actions targeting operations responsible for billions of calls to U.S. consumers.
  • Proposing a ban on impersonator fraud:  The FTC is in the final stages of a rulemaking process targeting business and government impersonation scams.
  • Cracking Down on Investment Schemes:  The FTC has brought multiple cases against investment and business opportunity schemes, including Wealthpress , Blueprint to Wealth , Traffic and Funnels , Automators and Ganadores .
  • Confronting Emerging Forms of Fraud: The FTC has taken steps to listen to consumers and build knowledge and tools to fight emerging frauds. For example, the FTC announced a challenge in 2023 to help promote the development of ideas to protect consumers from the misuse of artificial intelligence-enabled voice cloning for fraud and other harms.
  • Stepping up CAN-SPAM Enforcement : The FTC is using its authority under the CAN-SPAM Act to rein in unlawful actions, including in cases against Publishers Clearing House and Experian .
  • Reaching Every Community:  The FTC has expanded its ability to hear directly from consumers in multiple languages through the Consumer Sentinel Network.

The FTC’s Consumer Sentinel Network is a database that receives reports directly from consumers, as well as from federal, state, and local law enforcement agencies, the Better Business Bureau, industry members, and non-profit organizations. More than 20 states contribute data to Sentinel.

Sentinel received 5.4 million reports in 2023; these include the fraud reports detailed above, as well as identity theft reports and complaints related to other consumer issues, such as problems with credit bureaus and banks and lenders. In 2023, there were more than 1 million reports of identity theft received through the FTC’s IdentityTheft.gov website.

The FTC uses the reports it receives through the Sentinel network as the starting point for many of its law enforcement investigations, and the agency also shares these reports with approximately 2,800 federal, state, local, and international law enforcement professionals. While the FTC does not intervene in individual complaints, Sentinel reports are a vital part of the agency’s law enforcement mission and also help the FTC to warn consumers and identify fraud trends it is seeing in the data.

A full breakdown of reports received in 2023 is now available on the FTC’s data analysis site at ftc.gov/exploredata . The data dashboards there break down the reports across a number of categories, including by state and metropolitan area, and also provide data from a number of subcategories of fraud reports.

The Federal Trade Commission works to promote competition and protect and educate consumers . Learn more about consumer topics at consumer.ftc.gov , or report fraud, scams, and bad business practices at  ReportFraud.ftc.gov . Follow the FTC on social media , read consumer alerts and the business blog , and sign up to get the latest FTC news and alerts .

Contact Information

Contact for consumers, media contact.

Jay Mayfield Office of Public Affairs 202-326-2656

  • online-scams-schemes

70+ common online scams used by cyber criminals and fraudsters

common online scams

The internet is the most widely used communication network ever constructed. It’s used by millions of humans and machines every second of every day. There are positive and unpleasant things happening on the internet, and among the unpleasant things are ongoing attempts to scam innocent people out of their money or identities.

Indeed, wherever there’s a slight opportunity of making some easy money, you can be sure that criminals lay ready to pounce . The internet brings with it many such opportunities, and fraudsters appear to be waiting around every virtual corner with the latest in online scams.

While some forms of internet fraud have gotten very sophisticated, even some of the older, less advanced plays still actually work. If people know more about the types of scams taking place and what to look out for, we can hopefully save at least some people from getting swindled out of their hard-earned cash.

We’ve covered some specific types of scams in various dedicated posts, but here we’ll offer a roundup of many of the common internet scams currently in operation.

Related: Cybercrime stats and facts

What to do if you’ve fallen for an online scam

If you’ve been scammed online, don’t panic. We know it’s embarassing, but you may be able to get your money back by telling your bank what has happened. First, cease all communication with the scammer, report them to the relevant authorities (instructions at the bottom of this post), and run an antivirus scan just in case.

We recommend Norton Security and TotalAV . These are two excellent antivirus programs that can sniff out commonly-used malware and prevent scammers from using your computer without your knowledge. What’s more, they both come with a 30-day money-back guarantee, allowing you to try them risk-free.

Finally, change all of your passwords, especially for services that have your payment information saved. You can do this manually, or use a password manager to simplify the process by generating strong, unique passwords for every website.

Email-based scams

Email scams are a type of online fraud. While it’s true that a fraudulent offer can be contrived with almost any story, there are a few “tried and true” cons that seem to crop up repeatedly over time, such as:

  • Advanced fee fraud
  • Overpayment fraud
  • Work from home scams

The broad strokes tend to remain the same, but the details of these types of online fraud change over time. There are resources to keep on top of the ever-changing scams, and steps to take to defend against them.

Email is an extremely popular format for many common internet scams for the simple fact that it’s so cheap and easy to execute. You would think that scam artists would have refined their approach by now, but many scam emails are poorly written and fairly easy to spot. Nonetheless, some are more sophisticated and people still lose a lot of money to email scams every year.

See also: How to encrypt email

Advanced-fee fraud

The advanced-fee fraud scam has many variations, and may claim that you are a beneficiary of some estate money, have won the lottery, or have an old bank account you’ve forgotten about.

An advanced fee scam example.

Whatever the subject, the email is requesting that you send a fee in advance before you can receive whatever is promised.

Nigerian scam (Nigerian 419 scam)

The Nigerian scam is a variation of the advanced-fee scam but deserves its own spot since it has been so prevalent. Emails typically promise large rewards for helping “government officials” move money to a US financial institution, with upfront fees required.

The scam started in Nigeria and violates penal code 419 in the country, so is often referred to as a Nigerian 419 scam .

Charity fraud

Charity scams simply play on the emotions of victims to persuade them to hand over donations to fake charities and organizations. Subjects might include puppies in danger or disaster relief efforts. The emails typically include some excuse as to why the matter is urgent and may include links to legitimate-looking websites.

Aside from sending money, victims may be handing over their debit card or credit card details to thieves.

Work-at-home job scams

Working from home has so many draws and is a major lifestyle goal for many people. Scam artists capitalize on the dreams of these would-be remote workers by luring them with fantastic yet realistic-sounding work-at-home job opportunities.

The catch? They just need to send a wire transfer or money order upfront to pay for some equipment or educational materials before they can get started, but these never arrive, and there is no actual job.

Canceled account

Some scammers spend a fair amount of time creating official-looking emails from reputable service providers. They tell the target that the account is about to be suspended and that they need to provide information to keep it open.

The email might include a link to a phishing site requesting login credentials and billing details to secure the “continuation of service”.

The Netflix email.

Netflix customers were recently hit by such a scam.

This one is more targeted toward businesses. The scammer identifies the person within a company that has control over funds. They then pose as someone with authority such as the CEO, and request money be transferred to a specified account.

With all of the information available on LinkedIn these days, it’s fairly easy for fraudsters to identify who to target and to come up with convincing stories (see also: whaling).

This type of phishing requires some preparation because the scammer needs to act convincingly like the executive he or she is purporting to be. The fraudster will then contact someone in the company who has the authority to move money and direct that person to transfer funds to the scammer.

As with most phishing scams, CEO phishing is most effective when there’s a sense of urgency or emotionalism applied to the request. Therefore, many CEO phishers will zero in on new members of the finance department in the hopes that person does not yet know all the safeguards that may be in place to prevent the scam from working.

Read more on CEO fraud here .

Greeting cards

The very simplistic greeting card scam can be used to infect your computer with malware.

The email poses as a greeting card (e-card) from a friend or family member and encourages you to click a link. Once you do, the malware is automatically downloaded and installed on your system.

Affinity fraud

Affinity fraud refers to when someone uses a common interest or belief such as religion to lure you in. It often happens in person, especially within religious communities, but can be conducted via email too.

An example of an affinity scam.

The above email uses faith to try to hook the reader and persuade them that it’s legitimate.

Guaranteed bank loan or credit card

In this take on the advanced fee scam, you are told that you are pre-approved for a loan or credit card but that you just need to pay some processing fees.

It could be a small amount but fraudsters might be looking for bank account info more so than the money itself.

Service provider

This one often targets businesses and involves an email containing an invoice for legitimate-sounding services. A sense of urgency is used to convince the receiver that they need to pay immediately or risk having the case transferred to a collections agency.

Scam compensation scam

Yes, believe it or not, this one pops up regularly in spam folders. The email explains that its sender is coordinating some compensation for scam victims, and the receivers’ name is on a list of victims.

A scam compensation scam example.

You just need to send over some personal details before you can start collecting your compensation.

Elder fraud

While many types of internet fraud can target virtually anyone with access to a computer, many are crafted specifically with the elderly in mind. Seniors are often targeted for identity theft since they are perceived as being more susceptible to certain scams.

Here are some of the most common forms of elder fraud but you can find more about detecting and reporting these scams in our elder fraud article .

Investment scams

Elderly people seeking to invest are often looking for short-term lucrative projects to supplement their retirement income. Investment scams simply promise fantastic returns in order to get seniors to hand over their money.

Insurance schemes

The insurance scam plays on the assumption that seniors might be less focused on what they have now and more so on what they will leave behind for loved ones.

This type of scheme might involve a phone call or email persuading the senior that they need an annuity or life insurance policy .

Often the insurance firm is completely made up, but insurance scams are actually sometimes carried out by legitimate agents, including one who has been caught multiple times.

Health scams

As people age, health tends to be more likely to deteriorate and the need for prescription medication can become expensive.

Many online pharmacies have stepped in to offer drugs and other healthcare at lower than average prices. The problem is, most of these sites do not operate within the law or follow standard practices. For example, the founder of Canada Drugs is wanted in the US for selling counterfeit medicines, but the website is still very much up and running.

Canada drugs website

Without proper regulation, consumers really have no way of knowing what they are getting or if they will receive anything at all.

Grandparent scam

This one is technically a form of vishing and involves someone calling a grandparent and posing as their grandchild who needs money urgently. They might say they’re in jail or in need of medical help abroad, but that it’s imperative they get the money immediately.

Of course, the desperation tugs on the heartstrings of their “relatives” and one convicted scammer said that about one in 50 people fell for his scam.

Extortion scams follow the basic premise that you need to hand over money urgently or face a predefined consequence, whether it be real or fabricated.

Extortion schemes can be simple or extraordinarily complex, depending on the imagination of the perpetrator involved.

Here are some of the online extortion scams to look out for.

Ransomware is a type of malware that involves an attacker encrypting your files with the promise of decrypting them only in return for a fee.

One of the most notorious cases of ransomware was the 2017 WannaCry attack in which more than 400,000 machines were infected. Ultimately, criminals took an estimated $140,000 worth of bitcoin in exchange for decrypting users’ hijacked files.

Backing up files regularly can help protect you against the threat of ransomware.

In this form of extortion , victims are typically lured into sharing intimate photos or videos, often through online dating sites or social media. They may even be prompted to perform explicit acts while being secretly filmed. They are then asked to pay a fee to prevent the photos or videos from being released.

This terrifying scam involves threats of physical violence and even death, usually sent via email. The claim is often that the person sending the email has been hired to kill you and will relinquish their role in exchange for a fee.

Emails might include personal details garnered from social media or other sources to make them seem even more threatening.

Aside from going after your money, some scammers also try to obtain your personal information for use in identity theft.

Terrorist threat

This is a variation of the hitman scam that plays on today’s societal fear of terrorist acts. Again, the basic premise is that your life will be spared only if you pay up.

Bomb threat

Another one playing on the fear of recent world events is the bomb threat scam. This is an email telling people that there is a bomb planted in their building and it can be disconnected only if a certain fee is paid.

DDoS attack

Distributed Denial of Service (DDoS) attacks are similar to ransomware attacks, except that instead of file encryption you often have whole websites or internet services taken down.

Web servers hosting these sites and services are flooded with dummy traffic that overwhelms them, slowing the site down to a crawl or even shutting it down altogether.

Victims are instructed to pay a fee to gain back control over the service. Businesses are often prime targets for this type of attack.

We’ve touched on phishing in some of the other sections, but with this field comprising such a large portion of online scams, it’s good to know about the different types to look out for .

In fact, the common element in almost all types of internet scams is the initial “phish”. This is the act of tricking you into providing some kind of information that is later used to scam you.

The odds of pulling off a successful scam are low, so the pool of potential victims has to be very large. The easiest way to contact a large number of people with almost no effort is through email.

In some cases, phishing emails attempt to direct you to a clone of a trusted website where you’re likely to enter login credentials, or try to make you download malware.

In a dedicated phishing post , we look at how to avoid or repair the damage done by common phishing scams, some of which are explained below.

Spear phishing

Spear phishing is very targeted and the perpetrator typically knows some of your details before they strike. This could be information gleaned from social media, such as recent purchases and personal info, including where you live.

A phishing email or message might be crafted based on those details, asking for more information including payment details or passwords .

This is geared toward businesses and targets high-level executives within corporations who have access to the email accounts of someone in authority.

Once they have access to that email account, they can use it for other means such as accessing employee information or ordering fraudulent wire transfers (see also: CEO fraud).

W-2 phishing

This is an even more targeted version of whaling where the main goal is to obtain employees’ W-2s or contractors’ W-9s.

Cases have involved :

  • Tribal organizations
  • Chain restaurants
  • Temporary staffing agencies
  • Shipping and freight companies

The email might be from an actual or spoofed executive account or might appear to be from the IRS or an accounting firm. Once provided, the documents give criminals everything they need for identity theft.

Phishing to deliver ransomware

As if the phishing itself isn’t bad enough, many emails come bundled with ransomware. This way criminals can get an increased payload for their efforts.

Voice phishing (vishing) scams are not really online scams, but they are often linked and are becoming more sophisticated so are worth mentioning here.

They use voice solicitation to get information or money from consumers or businesses. The scammer calls the victim and attempts to use social engineering techniques to trick the victim into doing something, often to give credit or debit card details or send money.

Sending email spam and SMS spam is very easy and costs almost nothing. Calling an intended victim personally, on the other hand, takes more time and effort. For that reason, we are less accustomed to vishing and the stakes are often much higher in order to justify the scammer’s time.

One of the major benefits of vishing versus phishing via email is that criminals don’t have to worry about spam filters. Calls, in general, are far less abundant than email, so there is a higher chance of getting someone’s attention. While phone calls are more expensive than email, Voice over IP (VoIP) has made mass calling far more accessible to criminals.

To make matters worse, it is almost trivial to spoof a caller ID number these days. If a scammer wishes to present themselves as an official with your country’s tax bureau, it would be easy for them to show you a legitimate tax bureau number on your caller ID.

Bank fraud vishing scams are some of the most common you’ll come across.

Scammers will typically pose as a financial institution representative and tell you there has been suspected fraud or suspicious activity on your account. While some will then try to extract personal or bank account information, other scammers have different tactics.

One in particular involves persuading targets to install “protective software” on their computer to block any more fraudulent transactions. What the software actually does is allow remote access to the victim’s computer.

We’ll cover tax scams in a bit more detail later, but these are often carried out over the phone or through a combination of phone calls and emails.

The first contact via phone may be automated meaning scammers can reach a huge number of targets very easily. It also means they only have to actually speak with anyone who calls back. These callers would be considered “qualified leads” and easy targets at that point since they’ve already fallen for the first stage of the scam. See more tax scams.

Fake prize or contest winnings are often communicated via a phone call or automated voice message.

Promised prizes could be in the form of cash, a car, or an all-expenses-paid vacation. In reality, fraudsters are looking to find out personal details (including your address and social security number) for use in credit card fraud or identity theft.

Tech support

The tech support scam often starts as a phone call and ultimately ends up online, similar to the bank scam mentioned above. This time, a “technician,” claiming to represent a large firm like Microsoft, will tell you your computer is infected and you need to hand over remote support.

Once you do, the fake tech can do whatever they want with your system, including installing malware or ransomware. Typically, once they are finished “fixing the issue,” you’ll be asked to pay for the service. They then have all of your payment info and in some cases can continue to access your computer through the remote access software whenever they want.

This scam isn’t always initiated over the phone and might start via a web page popup that tells you your computer is infected and to call a support number. The popup is usually difficult to get rid of which serves as motivation to call the number provided.

Government agency

If you get an official-sounding call from a law enforcement or government agency, you’d be forgiven for being scared into handing over details. Criminals prey on this fear and often pose as police or government officers to phish for personal information.

Bear in mind, any such legitimate contact would be dealt with in person or at the very least by mail.

Social media scams

With the popularity of social media continuing to boom, it’s no surprise that it’s considered a ripe environment for scammers. While many of the other scams on this list could potentially be carried out through social media, a few very specific ones have popped up on social platforms .

“See who’s viewed your profile”

This scam takes advantage of the curiosity of Facebook users and might pop up as an ad while you’re browsing the site. You’ll be prompted to download an app with the promise of being able to see who has viewed your profile.

The thing is, Facebook doesn’t actually give this information out, even to third-party applications. All you’re actually doing is handing over access to your Facebook account, including your personal details and possibly banking information.

Facebook “dislike” button

During the last few years, the Facebook world is often abuzz with the prospect of a “dislike” button becoming available. Scammers capitalize by posting ads for such a feature. These lead to pages that look like they’re run by Facebook but that actually include links to phishing sites asking for personal information.

Fake celebrity news

This scam involves a clickbait-style headline on Facebook relaying some fake celebrity news, such as the death of a well-known star or a new relationship in Hollywood.

Angelina Jolie clickbait title.

Once you click, you’re prompted to enter your Facebook credentials to view the article, thus giving criminals full access to your account.

Impersonation scam

When you think about how easy it is to create a social media account, you realize there’s nothing stopping someone from creating an exact replica of your public profile . They can then reach out to your friends and family with friend or follow requests and once connected, pose as you.

These trusted connections can then be used for a whole host of purposes such as spreading malware or requesting money for made-up scenarios.

Instagram Likes scam

With many users across social platforms desperate for ‘likes’ and ‘follows,’ scammers have capitalized by offering just that. One app released in 2013 called InstLike asked for usernames and passwords in return for follows and likes.

The InstLike app.

In fact, they simply collected the credentials of 100,000 users and turned them into participants in a large social botnet. Basically, the app did deliver on its promise but used the accounts of those who signed up to do so. What’s more, within the app, people were encouraged to pay fees for additional follows and likes.

Job offer scam

A job offer scam might be run through email, but is commonly conducted through professional networking site LinkedIn.

Basically, you’re offered a job from a seemingly reputable company via direct message. In some cases, these can lead to scams whereby you become the middleman for transferring funds. You deposit a cashier’s check, then wire some of the money, keeping the remainder as your fee.

Unfortunately, the initial cashier’s check bounces and you are down the amount you sent in the wire transfer or money order.

Travel scams

Many people purchase airline tickets, hotel rooms, and even entire vacation packages online these days. Scammers know this and there has been a rise in fraudulent travel sites selling fake tickets and non-existent vacations.

Travel is usually a big-ticket item, which spells big bucks for criminals . Additionally, travel is a tricky purchase because you typically pay large amounts of money upfront for something that you won’t see until the date of travel.

This type of scam can be particularly problematic because you may not find out you’ve been scammed until you arrive at your destination or the airport. There may be no record of you having a booking at all.

Now you’re out the original money and also might have to come up with more to continue on your vacation, or simply pack up and go home.

Free or discounted vacation

These scams may be initiated via phone or email, but typically the target is told that they have won a vacation. In order to claim, they either have to pay a small fee (advanced fee scam) or provide credit card details for a deposit.

In the former case, the thief takes off with the money. In the latter, the credit card details can be used in credit card fraud.

Vacation ticket re-sell scam

In this case, someone posts an ad claiming that they have purchased a ticket for a trip they can no longer go on. They then sell the (fake) tickets for a much lower price than their face value.

Some victims don’t realize the scam until they show up at the airport ready for the trip. With insurance company agencies making it so difficult to get refunds on tickets, the fact that someone might be selling tickets online is made more believable, fueling the success of the scam.

Points scheme

In a points scam, the target is called or emailed and informed that they have won a huge number of points, through a travel points card program or a travel credit card points scheme. All they have to do is provide some details to confirm the transaction. This may include account information, credit card details, or other personal information.

Vacation rental

The vacation rental scam involves fraudsters posting ads for property in desirable locations for bargain prices. The victim is required to send a deposit or the full amount upfront.

Once they arrive at their destination, they may realize the property doesn’t exist, it has been misrepresented, or it isn’t actually available for rent.

As if tax season isn’t already dreaded enough without scammers making life more difficult! Criminals look to exploit both taxpayers and the government using a range of tax-related scams .

In a fake audit scam, targets are contacted by someone claiming to be from the IRS or similar tax agency and told that an audit has identified a discrepancy. Immediate payment is demanded with the threat of additional costs, imprisonment, or even deportation if victims don’t comply.

Whether it’s through an email or recorded voicemail, this scam is easy to execute so probably won’t go away any time soon.

Oddly, in Canada, it is reported that many of these particular scams involve payment requests via iTunes gift cards. You’d think this would be a bit of a giveaway, but it’s happening.

Fake refund

This one targets people who are expecting a tax refund. Again, criminals pose as the IRS or similar agency and prompt targets to click a link through which they can claim their refund.

However, the link leads to a phishing site where the victim is asked to provide personal information such as their social security number and banking details, which can be used in identity theft.

Erroneous refund

This scam is a bit more sophisticated as it actually uses real client details stolen from accounting firms via hacking or phishing.

The information is used to file a fake tax refund request which is processed by the IRS, and the client receives the refund amount. The scammer then poses as the IRS or a collection agency, tells the client the refund was issued in error, and demands the money be returned. Of course, the payment is directed toward the fraudster, not the IRS.

This case spells double trouble for the client. Not only are they short their refund, but they could also be in hot water with the IRS for supposedly filing a false claim.

Tax protester scheme

A tax protester scheme involves criminals calling or emailing consumers to tell them they don’t need to pay taxes.

This is really more of a troll than an actual scam because the person running it doesn’t benefit financially. However, the victim can be negatively impacted as failing to pay taxes can result in a conviction, including fines and imprisonment.

Bitcoin and cryptocurrency scams

With bitcoin and other cryptocurrencies exploding in terms of popularity and market cap over the past few years, it’s no surprise that criminals want to get in on the action.

Indeed, there are so many methods for scammers to choose from, and scams and hacks involving bitcoin and altcoins seem to be constantly in the news.

Fake coin exchanges

Since so many cryptocurrency-related businesses are relatively new, it’s difficult to know which ones are legit. Criminals have capitalized on this and simply take people’s money through fake or questionable exchanges.

One example of a blatantly fake coin exchange is Internet Coin Exchange which simply lists cryptocurrency price details alongside Buy buttons.

A screenshot of Internet Coin Exchange.

This one still appears to be very much up and running so we won’t be posting the link here.

Other questionable operations include Igot , which later became Bitlio. This exchange appeared to be operated inefficiently as there have been times when it simply can’t pay customers. Again, it’s still in business.

Hacked coin exchanges

Unfortunately, when exchanges are hacked by cybercriminals, both the exchange and its customers tend to lose out.

Mt Gox is probably the most famous case in which people are still waiting to find out if they’ll see their money four years on. But there have been other, more recent, high-profile hacks, including that of Coincheck to the tune of $500 million.

Pump and dump scheme

‘Pump and dump’ is a familiar term in the stock market, but it’s hitting cryptocurrencies too .

This involves the organized promotion of a particular cryptocurrency, usually a relatively unknown coin. The mass investment causes the value to spike, encouraging other investors to get in on the action. The value of the coin increases even further and when the time’s right, the first round of investors cash out, leaving the second wave with a worthless coin.

Fraudulent cloud mining companies

Mining of bitcoin and other cryptocurrencies typically involves using computational power to support the network in return for a reward. However, mining isn’t the easiest thing to get started with.

Enter cloud mining companies, which enable you to invest in mining without having to actually deal with the setup yourself.

When you invest in cloud mining, you’re putting a whole lot of trust in the mining company. Of course, where there are investors, there are scammers ready and waiting. For example, Mining Max raised $250 million for its operation, all but $70 million of which was reportedly pocketed.

The Mining Max homepage.

In another case, the CEO of GAW Miners pleaded guilty to $9 million in fraud as an outcome of some very dodgy dealings, including selling more hashing power than was available.

Mining malware

Mining requires a huge amount of computational power, and that doesn’t come cheap. As such, criminals have developed mining malware that can enable them to exploit users’ computational power.

Known as malicious cryptomining or cryptojacking , the malware is usually spread by a trojan virus. Infected computers then form a larger botnet that mines cryptocurrencies.

Examples of mining malware include “Digmine”, spread via Facebook Messenger, and WannaMine , which uses EternalBlue, the leaked NSA exploit.

ICO exit scam

An Initial Coin Offering (ICO) is a little like an Initial Public Offering (IPO) for a company, the major difference being the coin is really worthless until investors perceive value.

ICO exit scams are similar to the pump and dump scams we talked about earlier except it’s usually the coin creators doing the heavy promotion followed by a quick sell-off.

Investors are wooed with whitepapers and promises of superior security and broad application potential. They buy coins in exchange for fiat currency, hoping to get a return on their investment.

Some of the biggest exit scams we’ve seen so far are Plexcoin, which gathered $15 million in investments before it was suspended, and Benebit , the team behind which ran off with between $2.7 million and $4 million early in 2018.

Images of Benebit from ICODrops.

ICOs in general are viewed as such a problem that China has banned them and other countries are imposing heavy regulation .

ICO impersonators

Another issue among ICOs is not with the ICOs themselves, but with scammers impersonating them.

For example, the legitimate Seele ICO had their Telegram channel hijacked by people posing as admins. Investors were persuaded to pay for tokens before the sale had actually started and the funds were pocketed by the criminals.

Other fraudsters used a phishing scam centered around the Bee Token ICO as a means to dupe investors out of $1 million worth of ether.

Cryptocurrency investment schemes

With the cryptocurrency market being so volatile, it’s not uncommon to hear about massive gains over a short period of time. This makes classic pyramid or Ponzi schemes an easier sell to investors as people are less likely to view them as “too good to be true”.

Austrian investment scheme Optioment promised a whopping 4 percent weekly return to some investors and ended up reportedly stealing more than 12,000 bitcoins.

The Optioment website.

Other suspicious schemes include BitConnect, which shut down after receiving multiple cease and desist letters, and OneCoin, a reported global Ponzi scheme that is still going strong.

Wallet fork scams

Coin wallets are used as “safe” places for people to secure their cryptocurrency, basically somewhere to safeguard the private keys that can enable access to coins.

When a cryptocurrency forks and a new coin is created, it can be difficult to find a wallet that can accommodate the new coin.

Enter scammers. When Bitcoin Gold was first released, the mybtgwallet.com website popped up, promoting users to hand over their private keys and subsequently lose their coins.

The btgwallet site.

This one wallet scam reportedly resulted in total losses worth over $3 million.

Wallet impersonators

More impersonators are taking advantage of the cryptocurrency market, this time in the form of wallet clones.

Criminals make people believe they are depositing their coins into a legitimate wallet but are actually keeping them for themselves.

Hacker group Coinhoarder used such a scheme to steal more than $50 million worth of bitcoin and other cryptocurrencies. It used domains impersonating the reputable Blockchain.info and even used paid Google ads to attract more victims.

Coin-mixing service phishing scam

Coin-mixing services are used to mix coins in order to break the connection between the sender and receiver, making transactions more anonymous.

While coin-mixing services can aid illegal activity, they can have legitimate use cases, too. Popular sites include Bit Blender and the now-defunct Helix by Grams.

darknet markets screenshot

These two were involved in a phishing scam on the dark web where a coin-mixing tutorial used links to fake websites for both of the services. Users following the steps and visiting the links simply handed over their coin to the thieves.

Coin mixing service Ponzi schemes

It’s not just phishing schemes that affect users of coin-mixing services. Bitpetite ran a mixing operation but also asked for investors to hand over money with the promise of 4 percent daily returns! This was clearly unattainable and the site disappeared in November 2017 after stealing an unknown amount from investors.

Other online scams

Aside from all of the above, there are many more online scams to look out for. Here are some of the most popular plays making the rounds right now.

Fake anti-virus software popup windows

We mentioned popups in the tech support scam earlier. A common occurrence you might have already seen are popup windows prompting you to download anti-virus software. However, when you follow the prompt, you could end up with malware instead.

Fake websites

Fake websites are usually used in phishing scams. Typically, a replica of a legitimate website is used to encourage targets to enter details such as credentials, banking information, and personal details.

fake facebook site phishing

For example, the above image from the Expr3ss blog shows a very convincing fake Facebook login page.

Counterfeit goods sites

This is a more specific example of a fake website and is a big problem. Replicas of reputable websites may be used to make counterfeit goods seem legitimate. For example, brands like Ugg, Coach, and Michael Kors have had their websites copied almost exactly to make consumers believe they are purchasing genuine goods from the real brand.

Online dating and romance scams

Dating and romance scams are some of the oldest in the book, but as long as people are looking for love, they won’t be going away. In fact, in the US, romance scams account for the largest financial losses of all internet crimes. Fraudsters may contact targets through:

  • Social media
  • Dating sites

They typically pose as a different person, including creating completely fake profiles (this is called catfishing), and often work in groups. The ultimate goal might be to get victims to pay money , hand over personal information, or even aid in illegal activities .

Ticket scams

We mentioned travel ticket scams earlier, but would-be concertgoers and sporting event attendees are also common targets of ticket scams . They purchase tickets online and show up to the event to find out they’re holding fakes.

Rental scam

The rental scam preys on those desperately searching for a place to call home.

Rental ads are posted with below-average prices, attracting plenty of buyers. Would-be landlords explain that viewings are not available since they are overseas but they will happily issue a refund if you’re not satisfied.

First and last month’s rent are typically required to secure the rental property. The fake landlord may also have renters fill out a form that includes banking information along with other personal details.

SMS scams (smishing scams) are variations on phishing and vishing scams and involve the use of a text message.

SMS, or text messaging, is built into just about every phone on the planet. As phones become more internet-connected, many of us have transitioned to instant messaging apps like WhatsApp and Facebook Messenger. But good old SMS messaging is almost always available. Scammers know that and can use it to target you.

A smishing text message will usually have much the same aims as any other kind of fraud. Scammers may want you to click a link to download malware or adware, or bring you to a convincing-looking phishing page in order to trick you into providing your login credentials for a website. Others might provide a number to call as a transition to a vishing scamming method.

While these often follow similar plays to email and voice scams, there are some more specific cases, such as trying to get you to activate a new credit card or telling you an account is expiring.

Amazon phishing scam

In this rather complex scheme, targets order products on Amazon from third-party sellers . They don’t receive the item so call the seller to inquire. The seller prompts the buyer to complete the transaction outside of Amazon, so gets paid and has access to payment information.

Amazon delivery scam

This is a slightly different angle to the one above, but is also orchestrated by third-party sellers.

In this case, they ship empty packages to wrong addresses where they are signed for by someone who is in on the scam. Since the package is signed for, the victim often has problems when trying to make a claim with Amazon.

Astroturfing (advertising scam)

Astroturfing has been around for a long time and its definition can be loosely defined as a company creating fake support around its product in order to attract customers.

One famous example was McDonald’s paying employees to stand in line to create buzz around the release of the Quarter Pounder in Japan. With the persuasive power of online reviews, these have become a means for digital astroturfing.

Companies simply pay people to write fake glowing reviews on supposedly unbiased review sites. There are even Facebook groups dedicated to swapping online reviews for specific sites like Amazon or specific product types, for example, books.

Amazon review club.

Consumers rely heavily on these reviews when making purchases and ultimately end up with a subpar product or service or nothing at all.

Continuity scams

There is a broad range of continuity scams out there but they typically follow similar patterns.

Popups for surveys offering free gifts or amazing deals lead victims to enter credit card details to pay for minimal fees or shipping. Often hidden in the small print are exorbitant ongoing monthly fees that can be near impossible to cancel. In this case, you’ll likely have to contact your card issuer to stop future fees, but it’s unlikely you get reimbursed for those already paid.

This is another reason to always check your statements as these could easily go unnoticed.

Stock market scam

This scam is along the same lines as astroturfing and is conducted very much out in the open.

It involves articles or other methods and materials that persuade potential investors to contribute funds based on exaggerated predictions. In March 2021, the SEC enforced actions against a California trader that was posting false stock tweets.

Buyer scams

Most of us have sold something online at some point, but it’s seller beware.

Some scammers are using a tactic whereby they fake a pending payment to encourage the release of goods. This might be a bogus PayPal or email transfer message to say that payment will be released once tracking information is received. Once you do actually send the goods, no payment is ever received.

Overpayment

The overpayment is another one for sellers to watch out for. It usually relates to the sale of items or services, often through classified ads.

The scammer sends you payment for whatever you are selling but sends too much. They ask you to refund the difference. In the meantime (hopefully for them, it’s after you send the money) their payment is canceled or retracted. So you’ve received no payment at all but have issued them a partial refund.

How to recognize scams

Since online scams are popping up so frequently, with many probably yet to be uncovered, it’s impossible to list them all here. This just makes it even more important that you watch out for tell-tale signs.

Recognizing secure sites

Many scams require a legitimate-looking website for victims to interact with and provide the information the scammer is looking for.

Since virtually anyone can purchase almost any domain name and then visually re-create any site on the planet, how can anyone be sure they’re using a safe site? This is a good question which we cover in detail in a post about recognizing scam or fake websites .

Some techniques are technical, such as checking that the domain name shown in your browser’s address bar matches the site you think you’re visiting. Others are more holistic such as verifying the site has legitimate contact information on it and isn’t riddled with spelling errors.

There is no single silver bullet that can indicate the trustworthiness of a site, but there are a number of things you can check that will help you make a judgment call.

Spotting a fake or spoof phishing email

As Mr. Miyagi said in the movie Karate Kid , “best block, no be there”. In internet scams, the best defense is to simply not get tricked in the first place. Scammers can be clever, though, and it can be hard to spot the fake phishing emails sometimes.

In a dedicated post, we cover tips to help you spot a fake, spoof, or phishing email .

How to report a scam

In the best case scenario, you realize you’re being scammed before it’s too late. If this happens, you should get in touch with the operators of the platform on which you encountered the scammer, if applicable. This way, they can at least kick them off the site and hopefully prevent someone else from being scammed.

Depending on the nature of the scam, it may also be worth reporting it to your local police division. This should definitely be a port of call if you’ve lost money, have been coerced into doing something illegal yourself, or are being extorted.

Another action you should take is to report the incident to the fraud center in your country of residence:

  • US: FBI’s Internet Crime Complaint Center
  • Canada: Canadian Anti-Fraud Centre
  • Australia: ACCC Scamwatch
  • UK: Action Fraud

Victims of online scams are often too embarrassed to come forward. However, the more of these incidents that are reported, the better the chance law enforcement will have of shutting down the perpetrators, and the more aware others will be of the dangers lurking online.

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More From Forbes

What types of entrepreneurship beyond commercial are driving the market.

Forbes Finance Council

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Jeff Bartel is chairman and managing director of Hamptons Group, a private investment and strategic advisory firm headquartered in Miami.

Entrepreneurship has always been the backbone of innovation and progress, and in the evolution of today's markets, it continues to drive economic growth. Each type shapes the market—from what's typically considered business or commercial entrepreneurship focused on financial profits and economic value creation, to social entrepreneurship that blends profit with purpose to community entrepreneurship that fosters economic growth, and indigenous entrepreneurship promoting culture and sustainability.

Together, the different entrepreneurship types contribute to an innovative, responsible and inclusive future. Below I focus on understanding the types of entrepreneurships beyond typical commercial or business entrepreneurship and share some best practices for balancing purpose and profit.

Social Entrepreneurship

Social entrepreneurship is a movement where business objectives align with positive societal impacts. Social entrepreneurs serve a dual purpose: to generate profits while addressing significant social or environmental challenges. This approach drives the market by:

• Fostering innovation by encouraging creative solutions to complex issues.

• Responding to increasing demand from consumers who want impending socially responsible products and services.

Best High-Yield Savings Accounts Of September 2023

Best 5% interest savings accounts of september 2023.

• Attracting investment and partnerships from both private and public sectors.

Warby Parker is a prominent example of social entrepreneurship. Founded in 2010, Warby Parker disrupted the conventional eyewear market by offering stylish, affordable glasses while sticking to a solid social mission. For every pair of eyeglasses sold, the company donates a pair to someone in need. Working primarily through partnerships, they address an important global health issue.

Community Entrepreneurship

Community entrepreneurship is a localized and community-centered approach to business. It involves individuals or groups addressing specific needs within their communities in a way that fosters economic growth. This creates jobs and can also reduce income inequality. This example of entrepreneurship is known for:

• Prioritizing sustainable and ethical practices that lead to a greater awareness of environmental and social responsibility.

• Doing business deeply rooted in community culture, which results in more personalized products and services local consumers want.

• Encouraging collaboration and cooperation among diverse stakeholders.

Cleveland-based Evergreen Cooperatives is a group working to revive low-income neighborhoods with employee-owned businesses and a community-centered approach. By offering ownership in its various enterprises, such as an insulation and weatherization company, a laundry service and a coffee company, individuals become direct stakeholders in their economic future.

Cultural Or Indigenous Entrepreneurship

Cultural or indigenous entrepreneurs use their cultural heritage and knowledge, along with their community ties, to create businesses that generate economic success and continue to promote their cultures. Cultural or indigenous entrepreneurship drives the market by improving community members' financial well-being and strengthening the community's resilience and self-sufficiency. This form of entrepreneurship is notable for:

• Fostering economic self-reliance within indigenous communities by providing employment opportunities and reducing external resource dependency.

• Creating niche markets for authentic indigenous products and experiences to attract consumers who value authenticity and ethical sourcing.

For example, MoneyMob Talkabout is an Australia-based not-for-profit organization that provides financial education, counseling and support to Aboriginal people and communities. By tailoring their services to the needs and cultural sensitivities of these communities, the company empowers individuals to take control of their finances and break the cycle of financial hardship.

Best Practices For Balancing Purpose And Profits

At Hamptons Group, our emphasis is not only on the top and bottom lines but on doing well by doing good for people, the public and the planet. However, balancing profit and purpose can be challenging. For social, community or cultural entrepreneurship-focused companies looking to do that, here are some best practices:

• Weave your values into your business model. Integrating social and cultural values into your core business model is one way to merge profitability with your principles. For example, if your business focuses on sustainability, you could choose like-minded suppliers, optimizing operations for sustainability.

Make sure you're regularly assessing your decisions' impact on your business's financial performance as well as its social objectives. Adjusting accordingly can help you maintain the delicate balance between profitability and purpose.

• Foster an engaged and inclusive culture. Creating a strong company culture around your mission can boost employee engagement and productivity, which in turn could improve financial performance. A commitment to diversity, equity and inclusion reflects good leadership and may increase long-term financial strength by seeking diverse viewpoints and talent.

• Be open in your communications. Transparent communication about social and cultural initiatives builds stakeholder trust, potentially increasing customer support and market share. When sharing information about your company, engage all stakeholders, including employees, customers and local communities. This will showcase your company's dedication beyond monetary transactions.

Entrepreneurs today are redefining the marketplace with their innovative and inclusive approaches. Merging profit with purpose, they're shaping industries and influencing a better world. The highlighted companies demonstrate how diverse entrepreneurship can forge a brighter, more equitable future.

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?

Jeffrey Bartel

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