New List of Tax Scams

Every year there is a new fraud that is out to take people’s hard-earned money. People who want to make free money develop these schemes. They have various ways to contact individuals and solicit money from them. The IRS has created a list of twelve frauds that target people especially during tax time.

The list is:

  • Identity theft
  • Phishing
  • False Promises of Free Money from Inflated Refunds
  • Tax Return Preparer Fraud
  • Hiding Income Offshore
  • Charitable Organization Impersonation
  • False Income, Expenses, or Exemptions
  • Frivolous Argument
  • Falsely Claiming Zero Wage or Using a False Form 1099
  • Abusive Tax Structure
  • Misuse of Trusts

Each year, victims are scammed because the they ignore the warning signs. With the newest type of fraud that made the list is pervasive telephone scams. Many times the scams look or sound official, but remember that if the IRS is contacting you they will not ask for any part of your social security number, or even give you the last four digits.

The number one threat to taxpayers is identity theft. The fraudsters are not just trying to get your money, they want to use your information to steal from others. Many of the new scams are focusing their efforts on immigrants. They have threatened to arrest or deport the individual in they do not pay promptly.

Of you feel that you are a victim of a fraud contact the Service at 800-829-1040, the Treasury Inspector General for Tax Administration at 800-366-4484, and the Federal Trade Commission using the FTC Complaint Assistant at FTC.gov.

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Targeting Fraud through New Task Forces

In an effort to detect and analyze fraud, the SEC announced recently that is has established three new task forces within the Division of Enforcement to aid in investigations. The new task forces will each have specialized jobs that relate to different aspects of financial fraud.

Center of Risk and Quantitative Analytics (CRQA)

The CRQA is the data and analysis center of the Division of Enforcement. The main focus of the division is to identify risks that could harm investors, and monitor for financial transgressions.  The Division of Enforcement uses the CRQA as a resource that supports investigations through data analysis and risk assessment.

Financial Reporting and Audit Task Force

The Financial and Audit Task Force will help in the detection and prosecution of fraudulent financial reporting. The effort to expand enforcement, the task force will work to detect fraudulent financial statements, issuer reports, and audit failures. Enforcement lawyers and accountants will work to find and identify, through ongoing reviews and performance trends, areas susceptible to fraud.

The Microcap Fraud Task Force

The Microcap Fraud Task Force will focus on microcap securities. The SEC says that microcap securities are most often connected with fraudulent and manipulative strategies to accumulate gains. These small companies do not always report financials to the public and so the SEC wants to concentrate on them to help keep fraud from happening.  This task force will work with the Microcap Fraud Group that formed in 2010, but will not replace them.

Each task force will work to prevent fraud and audit misconduct while working on strategies to improve systems for identifying fraud and improving how audits are conducted.

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Combating Fraud

In every business, the reality is that fraud can happen. According to the Association of Certified Fraud Examiner’s authoritative annual Report to the Nations, estimates that 5 percent of business revenue worldwide, or approximately $3.5 trillion, is stolen through fraud each year. With the magnitude of fraud, business owners need to be aware of how to help prevent fraud.

It is hard to prevent fraud, because fraud happens when an opportunity presents itself and a person is willing or can justify the actions. Funds can be siphoned off for decades before someone realizes what happened.

When looking for fraud, it is important to know that not all audits or compilation will be looking for fraud. It is not a protection against fraud. The best way to detect fraud is from inside the company through internal controls. By completing an audit of your internal controls, a company can find their weakness and put in place monitoring systems that will discourage fraud. One way some companies have found that have been effective is a hotline for reporting dodgy dealings. Almost 40% of fraud cases are find this way, and training and hotlines do not cost much to establish.

The face of fraud is also changing making it difficult to know where the vulnerabilities come from within the company. The fast pace of the technology can also create issues that could lead to fraud. Here are some technology rules that can help curtail fraud:

• Remind employees that they are at work and should not be using the computer for personal purposes
• Use stronger passwords that are less easily guessed
• Make sure that firewalls are installed for all computers, when using the internet
• Treat phones and tablets like a computer, make sure the virus protection is updated
• Keep track of where your technology goes and who is using it.
• When using the cloud, know what protection and assistance you can except in the event of fraud or legal action.

Overall, the most effective way to combat fraud is to make it clear that it is unacceptable and is not tolerated. Do not blindly trust any employee, set out clearly the expectations and rules of the organization, and remember that the attitude starts from the top down. Set the example for employees and they will rise to the standards.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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