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Inside Fraud

How to Thwart Identity Theft

These best practices could put a stop to ID fraud right when it starts.
Theresa Mack Cendrowski Corporate Advisors

Tax Season always spurs chatter about protecting personal and financial information. But really, it's much more than a cyclical topic. It's something we need to be vigilant about daily in this increasingly connected world.

Knowing how to protect yourself from identity theft as a taxpayer is important, but tax preparers and businesses have additional things to consider. Here we review a few precautions to get you started.

Precautions for Taxpayers

1. File early. The sooner you file, the less chance there is for a thief to fraudulently file a return using your information.

2. Secure your connection. Most Internet browsers automatically establish secure connections to websites, but it’s wise to always ensure the “HTTPS” appear before the web address you’re using to file tax forms and financial documents. Of course, always make sure you’re visiting a legitimate website before sharing any information, and avoid doing so from public hotspots altogether.

3. Know your tax preparer. If you plan to have a professional prepare your taxes, make sure he or she is reputable and credentialed. You can always turn to the Illinois CPA Society’s Find a CPA Directory for further assistance.

4. Skip the scammers. I can’t emphasize this enough: DO NOT respond to any emails or telephone calls allegedly from the IRS. The IRS, law enforcement and government entities in general don’t communicate by these means or by threatening people over collecting back taxes and personal information. When this happens, as inevitably it will (I received a call at home just last month), be aware that it's a scam.

Precautions for Preparers & Businesses

Today’s fraudsters are ingenious, changing their methods constantly in pace with advancing technologies. Given the far-reaching consequences of identity theft and identification document fraud (ID fraud) in terms of both financial and reputational loss, protecting client identities must be front of mind.

Financial institutions, law firms and public accounting practices are commonly viewed as gatekeepers (not only in the USA but across the globe), and are well advised to verify the authenticity of their clients’ identity documents. When due diligence falls short, the consequences can be severe, ranging from false tax return filings to money laundering and outright fraud.

While it may seem obvious, an ID check is one of the most important aspects of the client identification process. It allows attempted fraud to be spotted at an early stage, enables businesses to meet regulatory requirements, protects against negligence and boosts the business’ reputation as a diligent service provider.

Financial institutions are required to verify the identity of every client they enter into a business relationship with; this is referred to as “Know Your Customer.” It’s a good idea for other businesses, including tax preparers, to conduct the same due diligence. But how do you check an identification document?

The numbers and types of IDs issued to individuals varies by country and state, but generally they include items such as passports, ID cards, driver’s licenses, residence permits, work permits, refugee travel documents, and more. Each of these documents has a unique design combination and set of security features, like RFID chips, photo-protection techniques, UV features and watermarks. Typically, we see ID fraud involving counterfeit, stolen, or lost documents, or the use of a different photograph to match the fraudster.

With this in mind, here are five tips to help you beat fraudsters at their own game.

1. Accept only secure documents. In other words, documents that contain security features, for example, government-issued passports and ID cards. Documents that don’t have security features, like utility bills, should never be accepted for anything other than address verification.

2. Check originals, not copies. Copies are only useful for record-keeping purposes.

3. Be consistent. Follow the same verification procedure for each customer.

4. Be thorough. Always check more than one security feature for authenticity. It’s a good idea to also check documents under a UV light. What’s more, ask the person presenting the documents for his or her age and compare their response with the date of birth stated on the documents. Further, check the expiration date, and look for alternations, deviations and any other changes or inconsistencies.

5. Think like a special agent. Carefully compare the photo on the identification document to the face of the person who presents it. Pay close attention to the shape of the eyes, ears, nose and mouth, and any skin markings. Also note the distance between these facial features.

As business owners, service providers and trusted business advisors, we all have a part to play in fighting fraud. A trained and properly equipped staff is your first and best line of ID fraud defense. Many local law enforcement agencies and the financial institutions you deal with provide ID fraud training programs and resources. What’s more, many will voluntarily assist you on a case-by-case basis.

Whatever the way, it’s imperative we spot and stop fraud at its earliest stages.