FRAUD

This refers to any intentional deception or misrepresentation made by an individual for personal gain or to cause damage to another individual. In the context of documents, this often involves creating, altering, or using documents in an unauthorized way to deceive or conduct unlawful activities.

Fraud is a punishable crime by law and is defined in the United States Constitution as a civic and criminal offense committed against a victim by unlawful or unfair material, monetary gains, or other benefits by deliberately deceiving the victim. In the year 2006, a review made by the U.S. government found that fraud is the most under-reported crime and some measures to effectively combat it were instituted.

To date, fraud felonies have not yet been effusively fought since fraudsters deceive their victims and disappear. Fraud cases require sufficient evidence for their execution, and that could lead to the victim never getting justice for a delinquency committed against him or her.

Falsification of documents is one of the fraud felonies, mostly engaged in through forging of signatures, use of official letterheads without authorization, deliberate distribution or use of a false document. Fraud in false documents also includes the statement of false information when required to give the correct information, altering or misrepresenting factual information such as prices and in cases of bankruptcy, concealing assets or property.

The fraud crimes could lead to incarceration in a correctional facility or payment of a fine if the fraudster is found guilty. Document falsification, such as illegal modification of tax returns and income statements, is mostly committed by individuals or organizations with broader criminal intention such as tax evasion.

Tax return fraud, under the federal law of the United States, is one of the crimes committed by taxpayers and fraudulent tax preparers who willfully evade assessment or payment of the tax imposed by the federal law through illegal modification of tax returns and income statement or failing to pay the taxes and get big illegal refunds. The tax evasion has been found to be the primary cause of the tax fissure amid what Americans owe in federal taxes and what the federal government receives.

The willful failure to report tips, income from side-jobs, cash receipts and barter trade income are cases that contribute to the existence of the tax gap. Tax evasion has also been facilitated by the existence of tax havens, which taxpayers take advantage from to evade taxes. The United States government has enacted measures to combat and eliminate tax evasion which has been found to date back to 1932 up to now. The tax fraudsters who have been convicted of such offense have been forced to pay monetary fines, imprisonment, and suspension of business activities or closure of their enterprises.

The impact of fraud related to identification documents is profound and multifaceted, affecting individuals, businesses, and the integrity of national security systems. At its core, this type of fraud involves the unauthorized creation, alteration, or use of identification documents such as passports, driver’s licenses, and social security cards. The repercussions of such fraudulent activities are widespread.

• Personal Impact: Individuals become direct victims when their identities are stolen or when fraudulent identification documents are used. This can lead to financial loss, damage to credit scores, and a long, arduous process of restoring one’s good name and financial standing. The psychological toll, including stress and a sense of violation, can also be significant.
• Business Consequences: Businesses suffer when fraudulent identification documents are used to execute financial frauds, such as opening unauthorized accounts or securing loans. These actions can lead to substantial financial losses and tarnish the reputation of affected institutions. Additionally, businesses may face regulatory penalties if they inadvertently facilitate such frauds, not to mention the increased costs associated with strengthening security measures and verifying customer identities.
• Government and Public Security: On a broader scale, the use of fraudulent identification documents poses a severe threat to national and global security. Fake or altered documents can be used to bypass immigration controls, potentially allowing criminals or terrorists to enter a country undetected. Moreover, such fraud undermines the integrity of government-issued identification systems, making it challenging for authorities to ensure the safety and security of their citizens.
• Economic Ramifications: The economic impact of identification document fraud is substantial. It drains resources through the losses incurred from fraudulent transactions, the costs associated with investigating and prosecuting these crimes, and the funds required to improve security and preventative measures. This type of fraud also distorts financial markets and undermines the trust that is fundamental to economic transactions.

The pervasive issue of identification document fraud necessitates robust verification processes and a comprehensive understanding of the key terms and concepts involved. Verification of documents is a critical step in safeguarding personal identities, maintaining business integrity, and ensuring national security. Below is a list of essential terms that are critical in the document verification process:

• Breeder Document: These are foundational documents critical for acquiring other forms of identification. Primary examples include birth certificates and Social Security cards, which are often used to secure further identification like a driver’s license. They are foundational in the sense that they ‘breed’ or facilitate the issuance of subsequent identity documents. The integrity of these documents is paramount as their compromise can lead to the illegal procurement of genuine documents, enabling identity fraud or more severe crimes such as terrorism.

Example: A birth certificate is used by an individual to obtain a passport. The passport is obtained legitimately, but it all relies on the authenticity of the birth certificate. If the latter is fake, then the integrity of all subsequent documents is in question.

• Authentic Document: This is a document that remains in its original form, unaltered since its official issuance by a legitimate authority or agency. It’s a genuine document that has been obtained through lawful means and holds legal validity.

Example: A university diploma issued directly by a recognized educational institution and has not been altered in any way since its issuance. This document is considered authentic because it comes from a legitimate source and has not been modified.

• Authenticating: This is the meticulous process of examining a document to determine its legitimacy. It involves scrutinizing various elements of the document, including material, ink, text, and incorporated security features, to ascertain whether it’s genuine or fake. For a document evaluator, proficient authentication is a fundamental task to prevent fraud.

Example: A bank meticulously examines a check presented for payment, verifying elements such as paper quality, ink, signature, and security seals to confirm that it is not a counterfeit check.

• Identity Theft: The identity theft is the deliberate use of someone else’s identity for self-gain and perhaps to the other party’s disadvantage or loss. The party whose identity has been assumed may suffer adverse consequences if he or she gets apprehended for the perpetrator’s actions. The victim of Identity theft could suffer from financial loss. Determination of the link between data breaches and identity theft is challenging, mainly because identity theft dupes often do not know how their information was acquired. An individual purposely commits identity theft crimes for financial as well as no-financial gains and range from child identity theft, medical identity theft, criminal identity theft and identity cloning which are all crimes punishable by the federal law of the United States.

Example: An individual illegally obtains another person’s social security number and uses it to open credit accounts, incurring debts in the victim’s name without their consent or knowledge.

• Title Washing: This fraudulent activity involves erasing the negative history from a vehicle’s title, such as its salvage, rebuilt, flood, or junk status. It’s typically done either through document manipulation or by transferring the vehicle to a region with lax branding laws. This practice is particularly dangerous as it allows vehicles, which may be unsafe, to re-enter the market and be sold to unsuspecting buyers as if they were in proper condition.

Example: A car that has been declared a total loss after a flood is taken to another state where the requirements for obtaining a clean title are less rigorous. The flood damage history is deliberately omitted from the new title, and the car is sold as if it were in normal condition.

• Fraudulent Document: This is a broad term encompassing both counterfeit and altered documents. Essentially, it refers to any document that’s not genuine, created or modified with the intent to deceive or commit some form of illicit activity.

Example: A forged identification card that looks official but has been entirely created by an unauthorized entity with the purpose of deceiving authorities or other parties.

• Counterfeit Document: This term describes a fabricated document, created from the ground up to mimic or replicate the appearance of a genuine document. Unlike altered documents, these are entirely forged and are not based on an original legitimate document.

Example: A banknote that has been manufactured by an unofficial entity, attempting to replicate all security features and characteristics of the genuine banknote but without any legal authorization for its issuance.

• Altered Document: Refers to any genuine document that has been modified post-issuance by an authorized body. Modifications might include changes to personal data, photo swaps, or the falsification of other details, usually with the intent to deceive.

Example: A legitimate passport in which the original photograph has been replaced with that of another person, in order to allow the bearer to impersonate the legitimate holder of the document.

• To make money illegally: Individuals may engage in document fraud as a means to generate income through illicit channels. This could involve creating or altering documents to deceive others in financial transactions, such as selling fake identification documents, forging checks, or creating counterfeit currency. The primary motive here is financial gain, obtained without regard for legal boundaries or the harm inflicted on victims.

Example: Mario Medina is a professional driver and has a Class A license, this allows him to handle trucks and heavy cargo, he changed his address, when, he requested via internet the change of address in the Department of Engines and Vehicles of the state where he receives, he received his license by mail, when receiving the same one realizes that it has a photography that is not the one of the same one. This can happen if the document has been illegally issued to another person who cannot obtain this type of license but who uses the fraudulent to obtain benefits.

• To commit a crime: Document fraud can be a preparatory step in the execution of further criminal activities. For instance, altering or fabricating identification documents may enable individuals to purchase weapons illegally, transport contraband, or engage in human trafficking. Here, document fraud serves as a facilitator, enabling individuals to circumvent laws and regulations that are in place to prevent such crimes.

Example: An individual alters their driver’s license to change the age, allowing them to purchase alcohol or enter venues restricted to certain age groups. This alteration of the identification document facilitates the commission of an age-related offense.

• To hide from the law: Individuals who are evading law enforcement may use document fraud to conceal their true identities. This can involve creating new identities or altering existing documents to avoid detection and arrest. This is often seen in cases involving fugitives or individuals wanted for crimes, who seek to live under an assumed identity to continue evading the legal consequences of their actions.

Example: In the United States, drivers who failed to meet the requirements determined by each state were released from 9/11. For this reason, many people looked for driving options. International licenses appeared on the market that were not really licensed. If it was not that, it was a fraudulent industry that issued driver’s licenses from Latin American countries and also from different states of the country. These people use these identifications to drive and request ITIN numbers in a fraudulent form and with changed names.

• To obtain a benefit: US passports are used for the entry of infants of similar physical characteristics to the United States in a fraudulent manner, as well as passports of Puerto Rican citizens that are used by people with similar physical features to obtain driver’s licenses and more benefits within the United States.

Example: A person falsifies income statements and employment records to qualify for a housing loan or government assistance program they would not otherwise be eligible for. By presenting these fraudulent documents, the individual unjustly gains financial benefits or support.

• To escape consequences of an act: A person may commit fraud in order to avoid the label of being a registered sex offender, to continue to drive despite having had his driver’s license suspended or to avoid paying child support. The identity change of these people using false identity documents.

Example: After being involved in a hit-and-run accident, a person forges garage documents and receipts to claim that their vehicle was in the shop during the time of the incident. This act of document fraud is aimed at creating an alibi to avoid legal responsibility and potential penalties for the crime.

Fraud refers to deceptive actions conducted with the intent to gain an unfair advantage or to cause harm to an individual or an organization. It can be broadly classified into two main categories, external and internal.

This refers to fraudulent activities involving documents that are perpetrated by individuals or entities outside of an organization. Common examples include forging signatures on official documents, creating fake identities using counterfeit documents, or altering existing documents to deceive during transactions or legal processes.

This involves the creation, alteration, or misuse of identification documents by individuals within an organization, particularly those who have legitimate access to such documents or the systems that produce them. Employees or officials might produce fake IDs, passports, or employee badges for unauthorized individuals, or they might alter existing documents for purposes of identity theft, unauthorized access, or financial gain.

This type of fraud can also include the misuse of someone’s personal data to create legitimate-looking identification documents without their consent. It’s a severe breach of trust and security, potentially leading to significant legal consequences and damage to the organization’s credibility and security measures.

There are two major types of secure documents divided according to the material they are made from: paper and plastic. Paper documents are highly rigid and embody some form of printing, introduction of different colors and also composed of different forms of graphics. The features added onto the paper contribute its uniqueness and security against counterfeiting.

 

On the other hand, plastic documents are more flexible and protected against water. These documents are made using heat or pressure, and a specified combination of plastic polymers to guarantee their security.

 

The fraud detection model focusing on three core elements (documents, people, and actions) offers a structured approach to identifying and mitigating fraudulent activities. This model emphasizes the interconnectedness of these elements in the landscape of fraud. Here’s an overview of each component:

This aspect scrutinizes the nature, frequency, and pattern of the actions or transactions being carried out. It aims to detect irregularities or deviations from the norm that may signal fraudulent intent or activity.

 

Techniques involve real-time monitoring of transactions, pattern recognition, and anomaly detection to identify unusual or suspicious actions. Advanced statistical models and machine learning algorithms are often employed for this purpose.

 

Monitoring and analyzing actions help in identifying and mitigating risks promptly. It’s a proactive measure in fraud prevention, enabling organizations to respond swiftly to potential threats before significant damage occurs.

 

As a document evaluator, you need to ask yourself:

• Is the document holder showing any suspicious behavior?
• Is the document holder giving you the correct answers to your questions?
• Does the photo look like the person presenting the document?

Listen to the person who brings the document to you:

• Listen to the entire response to your questions and watch their behavior.
• Prevent assumption errors by actively listening.
• Get a clear answer for every question you ask.
• Listen carefully for misdirects.
• Listen for inappropriate pauses when the person is answering easy questions.
• Listen for incorrect, contradicting or changing answers.
• Do not ask another question until you receive an answer to the first one.

The aim is to thoroughly assess the authenticity and integrity of documents, ensuring they are genuine and have not been tampered with or forged. Documents are a common target in fraud schemes and serve as a critical checkpoint in the fraud detection process.

Techniques involve:

• Removing: Safely extracting the document from its protective environment or file to ensure it can be examined without any contextual bias. This might involve taking the document out of a folder, envelope, or any other covering. Removing the document also allows you to examine the document thoroughly by exposing the back, sides and edges of the document.
• Viewing: Conducting a visual inspection of the document under appropriate lighting and possibly using magnification tools. This process includes checking for visual inconsistencies, color discrepancies, or alterations.
• Touching: Physically handling the document to feel for irregularities. This could involve sensing the texture of the paper, feeling for raised characters (like those produced by typewriters or embossers), or detecting any physical alterations that might not be immediately visible. Examples can be:
  o   Rotate the card to look for security features.
  o   Feel the photo (for bumps or imperfections).
  o   Feel the surface of the document. Some paper documents are printed with ink that feels raised; some documents have surface that may feel smooth and glossy.
  o   Feel for thickness of a document. For example, feel each page of a passport for evenness, or feel the thin plastic on a credit card-style document.
  o   Feel for separations in the paper or plastic, which could show an altered or counterfeit document.

• Examining: This crucial step involves employing specialized techniques to meticulously scrutinize the document for any signs of fraud. Analysts may use ultraviolet (UV) light to reveal invisible marks or watermarks and infrared light to detect any erasures or alterations. Microscopes might be utilized to inspect microprint or other intricate details closely. Additionally, a critical component of the examination process is the photo matching procedure, where the photograph on the document is carefully compared with the individual presenting it. This comparison focuses on analyzing facial features, aging discrepancies, and other identifiable characteristics to ensure the person in the photo is the same as the person presenting the document, thereby preventing identity fraud and ensuring the legitimacy of the document holder.

The physical examination of documents is a fundamental part of fraud detection. By meticulously removing, viewing, touching, and examining documents, investigators can detect subtle cues of tampering or forgery that might not be evident through automated or cursory checks. This hands-on approach is particularly crucial for high-stakes verification processes or when handling sophisticated forgeries that require a detailed inspection to uncover.

Watch for these behaviors:

• Avoidance or over-use of direct eye contact.
• Nervousness, fidgeting or stammering.
• Repeating questions back.
• Defensiveness or attempts to intimidate.
• Rapid speech.
• Excessive friendliness or rudeness.
• Interruption of speech by either coughing or clearing of the throat.
• Display of physical signs of discomfort.
• Blocking view of the contents of wallet or other belongings.
• Continually looking around.

Ask yourself the following questions:

• Are any changes or alterations immediately visible?
• Are there any irregularities in font, punctuation, spelling, placement or alignment?
• Are there any irregularities in handwriting, ink or pen type?
• Do the information and photos match the person presenting the documents?
• Do the information and photos match across multiple documents?
• Are there any red flags?

The third and final component of the fraud detection model is Actions. This stage comes into play after thorough examination of the documents and careful screening of individuals involved. At this juncture, based on the findings of the verification process, you are presented with a couple of distinct paths:

• Issue the Document: If all checks and verifications align with the required standards and no signs of fraudulence are detected, the document can be safely issued. This step signifies the successful completion of a rigorous verification process, ensuring the legitimacy and integrity of the document and its holder.
• Addressing Suspected Fraudulent Activity: If, however, discrepancies or signs of fraudulent activity are uncovered during the examination or screening process, it is imperative to take immediate and appropriate action in accordance with your jurisdiction’s established policies and procedures. If you don’t know your jurisdiction’s policies and procedures, please take the time to check with your supervisor.

Frauds have symptoms. This should be taken as a basic fact. This is because fraud is simply a tool or a means to an end (achieve financial gain, promotion, prestige, etc.).

 

There must be some reason why a person, or an employee, has committed a fraudulent act. Must be he / she needed money. The question is: why did he / she need the money?

 

At this point, the person doing the research can ask the following questions.

• Is the person wasteful?
• Does he / she have many vices?
• Does he / she have any financial problems?
• What about he / she previous records?

Symptoms of Fraud can be separated into six groups:

1. Accounting anomalies 
Accounting anomalies result from unusual processes or procedures in the accounting system. Common anomaly frauds involve:

• Irregularities in source documents
• Faulty journal entries
• Inaccuracies in ledgers.

2. Internal control weaknesses
Internal control fraud symptoms include:

• Lack of segregation of duties
• Lack of physical safeguards
• Lack of independent checks
• Lack of proper authorization
• Lack of proper documents and records
• Overriding of existing controls
• Inadequate accounting system.

3. Analytical anomalies

Analytical Fraud symptoms include:

• Unexplained inventory shortages or adjustments
• Deviations from specifications
• Increased scrap
• Excess purchases
• Too many debit or credit memos
• Significant increases or decreases in account balances, ratios, or relationships.

4. Extravagant lifestyle
A person’s lifestyle changes when for example, he or she:

• Embezzled $3 million from their employer
• Bought a $500,000 or more home
• Bought five luxury cars
• Filled home with artwork and glass
• Bought a boat
• Paid cash to have yard landscaped
• Served lobster flown in from the east coast.

5. Unusual behavior

1.     Understand the Business

2.     Identify Possible Frauds That Could Exist

3.     Catalog Possible Fraud Symptoms for Each Type of Fraud

4.     Use Technology to Gather Data About Symptoms 

5.     Analyze and Refine Results

6.     Investigate Symptoms

7.     Follow Up and Iterate the Cycle

8.     Automate Detection Procedures (Optional)