Social Fraud

Thought I’d take a break from tax topics to talk about a growing area of employee fraud --  social media related fraud.  A new survey by Robert Half shows that internal auditors at large companies list this subject as their top concern.  Worse yet, this topic gets priority based on a  combination of high inherent risk for fraud combined with an acknowledgement that companies aren’t paying attention to how and when social media is actually being utilized.

Not only are companies not aware of what is going on, the Robert Half report goes on to say that a set of best practices for monitoring social media use by employees doesn’t appear to exist.  Conversely, statistics indicate that best practices for circumventing company security to use social media are commonplace – a 2010 Trend Micro survey shows one in ten employees say they do this regularly.  In the same survey, half of the users said they disclosed confidential company information through a social media outlet.  The survey also showed unauthorized use of social media growing.  Interestingly, when Trend Micro talked about the impact of this with large companies, what they found was an increased incidence of fraud related to security breakdowns that weren’t intentional on the part of the original offender.  Apparently criminals target social media interactions associated with corporate computers to gain access to data that allows them to commit crimes against the organization.

This isn’t just a big business problem.  Small companies should confront this aggressively as soon as possible.   As with every other type of fraud prevention, you start with defining what the problem looks like for your company.  The next step is to engage your staff by making the risks clear to them.  A Globe Scan survey done last year showed 87% of employees thought they should be allowed to use social media at work.  Explaining why it’s a fraud related problem is a good starting point for limiting use.  You’ll also want to engage the people responsible for your tech security to get protection.  Presumably this will create a toolkit for working with employees to discuss acceptable and nonacceptable use of cloud and social media applications. 

Gartner consulting says by 2014 one in five people will use social media to the full exclusion of e-mail for communications.  That means you can’t eliminate the problem, you can just manage the risk. Starting sooner is your best bet for financial fraud prevention.

Caveat Emptor -- Buyer Beware

As I can tell you from up close exposure, the tax code doesn’t get simpler each year.  If you are seeking out help with this project it is important to be careful.  The IRS (which right now is not on my list of favorite things!) did put out a helpful list of warning signs that the person who is offering tax assistance may not be legit. 

• No Preparer Tax identification number
  • In addition to a CPA license, I need to pay for one of these too.  At this point, they’re pretty easy to get, so a fraudster who doesn’t even bother to get one is both a lawbreaker and lazy.
• Not giving you a copy of the tax return to sign
  • You are responsible for what goes on the return, not your preparer.  Make sure you are familiar with what is on it.  Telling the IRS I didn’t look at my return will not help you avoid penalties.
• Promises related to refunds
  • No one should prepare taxes based on a percentage of your refund or promise you a bigger refund.  The only reason you get a big refund is that you overpaid your taxes during the year.  What you want in terms of tax preparation help is someone who helps you plan so you don’t give the IRS your money interest free for a year. 
• Tells you it’s OK to put false information on your tax return
  • The IRS doesn’t fight fair to begin with.  Don’t give them ammunition to put into the gun.  Be honest, and work with someone who can help you pay less in tax.  Tax avoidance is legal and encouraged.  Tax evasion is expensive and can involve jail time.

  

From my reading on this topic I would add a note to be skeptical of deductions that seem too good to be true.  Deductions and credits are usually designed so the more they could help you, the less they actually do.  An example of this kind of “advice” is a deduction of all your expenses – including personal items – because you have a home based business.  First of all you can’t take personal expenses for a business. Also, deductions for businesses get limited based on how much you invested in the business in the first place.  This is a perfect illustration of how the complexity of the system makes it easier to victimize people. 

While I’m not a fan of having to pay taxes, it is something to take seriously.  When the IRS decides you’ve done something wrong (even if you haven’t) it’s an enormous hassle.  If you’re going to spend time and money on tax preparation, it’s worth an extra amount of due diligence to think about what credentials your helper really has.