Written by Tracy L. Coenen, CPA, CFF
Wisconsin Law Journal
Reprinted in St. Louis Daily Record
Identity theft affects countless consumers and businesses each year, costing millions and maybe even billions of dollars. In 2004, the Federal Trade Commission received over 635,000 consumer fraud and identity theft complaints with reported losses of $547 million. During 2005, the FTC received 685,000 consumer identity theft complaints with reported fraud losses of over $680 million.
The number of complaints and the total losses have been increasing year after year. Still, identity theft doesn’t seem to be a major concern to many businesses and consumers. Until identity theft hits home and ruins someone’s finances, many don’t consider the consequences.
How Identities Are Stolen
It has become commonplace to hear reports of data compromises at businesses that store large quantities of consumer data. Companies like ChoicePoint, Citigroup, and LexisNexis have made headlines by misplacing or exposing consumer data. Computer hackers can expose millions of individuals in mere minutes.
While large-scale data compromises unfortunately are becoming more common, they should not overshadow the minor incidents that start an identity theft scheme.
Even sophisticated fraudsters sometimes use low-tech methods to accomplish their crimes because they’re so easy.
Outgoing mail is an easy way for identity thieves to get their hands on personal information. A mailbox at the end of a driveway with a flag up might as well hold a “steal me” sign. These mailboxes are not secure, and it only takes seconds for a thief to steal your mail which includes account numbers and personal information.
Dumpster diving is one of the less glamorous ways to get personal information. Thieves won’t hesitate to dig through trash to look for bank statements, credit card receipts, and credit card offers.
Modern day methods of stealing data include skimming and phishing. Skimmers obtain debit and credit card numbers by swiping your card through a small data storage device. The device harvests the information on the card’s magnetic strip and allows the scammer to create cards with your account information.
Phishers pose as legitimate companies via email and convince consumers to “verify” their personal data. Often they will claim that account data has been compromised, and their account will be frozen unless they provide their social security number, password, and other identifying information.
The Internet has created many opportunities for data theft. While stealing wallets and purses might be one simple way to obtain personal information, technology provides access to many more potential victims.
Signs of Identity Theft
It is common for identity thieves to obtain credit in the victim’s name, including credit cards, utility service, vehicle loans, and apartment leases. Unrecognized accounts and inquiries on a credit report signal a problem. This is why it is so important for consumers to regularly examine their credit reports.
Denial of credit or unfavorable credit terms with no apparent reason will also signal a problem. Clearly, being contacted by a debt collector for merchandise or services you didn’t purchase is problematic. Failure to receive your normal bills in the mail may indicate a theft of mail or an identity thief who has changed the address on your accounts.
Recovering From Identity Theft
Each case of identity theft is different, and the lasting effects of this fraud depend upon the type of theft, whether or not your information was sold or passed on, and whether the thief is caught. While the direct monetary losses are often limited by credit card issuers, the effort to clean up the mess left by a thief can be monumental.
Upon discovering that your identity has been stolen, bank accounts and credit card accounts should be closed immediately. Replacement accounts should be opened, with secure passwords attached to them. Don’t cancel credit card accounts all together. Opening brand new accounts can be difficult after an identity theft, so it is wise to keep your accounts, but have the credit card companies change the account numbers.
Those who have had their identities compromised can register a fraud alert with the three credit reporting agencies. This may help stop credit accounts from being opened in your name, and it might not. Creditors are not required to run credit checks before opening accounts. If they do check your credit, they will be notified of the alert, and should verify identity before issuing credit. But as you can see, this is not a failsafe measure, since not all creditors run credit checks.
If government-issued identification is stolen, such as a driver’s license, the victim should contact the agency to cancel the identification and issue a replacement. Many agencies will also flag your record so that no one else can get an identification document in your name.
Police reports are often necessary. While this may be a more frustrating part of the process, it may be necessary to help rectify fraudulent accounts in your name. It is also a good idea to file a complaint with the FTC.
Prevention is Key
As with any financial fraud, it is much easier and less expensive to prevent the crime than clean up afterward. Monitor your credit accounts regularly. Many credit card companies have online access, which makes it easier to keep a close eye on your account. Rather than the once-a-month statement, consumers can look for fraudulent charges daily or weekly.
Order a copy of your credit report. The Fair Credit Reporting Act requires each of the three credit reporting agencies to provide you with a free copy of your credit report, at your request, once every 12 months. Stagger your requests for these three reports so that you can monitor your credit throughout the year. Carefully examine the credit agency data, and report any errors or irregularities immediately.
Secure personal information in your home and office, especially if strangers have access to those areas. When discarding financial information such as store receipts, credit card offers, canceled checks, bank statements, and credit card statements, always use a shredder. Throwing these documents in a garbage can without properly destroying them is an identity theft waiting to happen.
Don’t give out personally identifying information on the phone, through the mail, or over the Internet unless you are sure that you know who you’re dealing with. It is amazing how many frauds occur because a thief initiates a phone call to an unsuspecting target. Never reveal your Social Security number, mother’s maiden name, or account numbers without verifying who needs it and why it is needed.
Companies are now offering insurance products that claim to give protection against the costs associated with resolving the theft of one’s identity. While this may offer some financial relief, it does not ease the time commitment required to resolve an identity theft.
The most important part of dealing with an identity theft is immediate action. Initiating fraud alerts and securing accounts can be some of the most important steps you will take. Doing so immediately will make it harder for an identity thief to profit from your misfortune.
Tracy L. Coenen CPA, MBA, CFE is president of Sequence Inc, a forensic accounting firm with offices in Milwaukee and Chicago. Ms. Coenen can be reached at 414.727.2361 or [email protected].
