Individual identity theft has gotten a lot of press in recent years, but what about the theft of a business’s identity? For many of your clients, their identity and their company’s identity are virtually the same, and a crook’s hijacking of the latter can have crippling effects on their personal and professional lives. Make sure clients know the risk of this dangerous type of fraud, as well as how to help prevent it.
Know the risks
Business identity theft occurs when fraudsters assume the identity of a company’s owner, officers or employees to obtain cash, credit or loans. For example, with an owner’s Social Security number and other personal information, a thief could apply for — and quickly exhaust — a line of credit. The victimized company is then stuck with the debt and may even lose assets that were fraudulently pledged to secure the loan.
Potential consequences of business identity theft include:
- The inability to pay employees, tax obligations or bills,
- Personal liability,
- Negative credit reporting,
- Loss of personal income, and
- Litigation to defend ownership of intellectual property, such as trademarks, copyrights and patents.
In a severe case, losses associated with identity theft could lead to a business’s failure.
Prevention is best
Although thieves are constantly thinking up new ways to steal identities, business owners can take steps to reduce the odds of being victimized. For example, they should closely monitor their business accounts and, in certain industries (such as retail), reconcile accounts on a daily basis. They also should review and reconcile bank and credit card statements — as soon as they arrive — with an eye toward suspicious purchases or transactions. Many identity thieves will initially make a few small purchases on a hijacked account and, if the business doesn’t appear to notice them, proceed to larger transactions.
Unauthorized accounts and debt will eventually show up on a company’s credit report. Businesses are advised to routinely order reports from the three main credit agencies and review them for inaccurate and suspicious activity.
Business owners also should keep their company and personal finances separate. Personal credit cards, accounts and lines of credit shouldn’t be used for business-related transactions. Note that most banks and credit card issuers exclude business-related transactions made with a personal card from their “100% fraud protection” programs. This means that owners could be personally responsible for losses that result from fraudulent business charges and withdrawals.
Finally, owners should periodically check with their Secretary of State’s office to ensure their business entity history and details remain correct. If unauthorized changes have been made, they should report them immediately.
Enlisting employees’ help
Training is important, too. A company’s employees are its first line of defense against fraud perpetrators, and staff members need to know and understand their roles.
A qualified CPA can conduct training sessions on how to recognize the most common — and emerging — identity theft schemes, along with the related red flags. For example, employees should notify their managers if they discover misaddressed business mail, unexpected account statements and phone calls regarding unfamiliar accounts.
Business identity theft, like most kinds of fraud, thrives in environments of complacency. To avoid the potentially devastating repercussions of identity theft, your clients need to take proactive steps to combat fraudsters.