Identity theft complaints soar 14.7 percent in 2014

In part 2, we'll analyze more stats from the Federal Trade Commission's 2014 Sentinel Data Book and report on additional general identity theft complaint categories that reflect how ID fraudsters rip-off individuals. Our goal is to enable you to avoid becoming an identity theft victim and pass along prevention guidance to your colleagues, families and friends.

On June 25, the U.S. Department of Justice reported that Tamaica Hoskin, of Phenix City, Alabama, was sentenced to serve 145 months in prison for acting as a ringleader in a massive scheme to file more than 1,000 fake federal income tax refunds that claimed more than $4 million in tax refunds between September 2011 and June 2014. She also had to return more than $1 million from the proceeds of the scheme. She conspired with Lashelia Alexander, who worked at a Walmart check-cashing center in Columbus, Alabama, to cash more than $100,000 in fraudulent tax refund checks. She also set up scam companies for check cashing. (Click here for more details about how this fraudulent scam was designed and executed.)

As I wrote in part 1 of this article in the July/August issue, income tax refund fraud has taken the U.S. by storm in the past two years, accounting for losses of $6.5 billion in 2014 and projected to escalate to $21 billion in 2016, according to Tax-refund fraud to hit $21 billion, and there's little the IRS can do, by Matt Hunter of CNBC.

Every year, law enforcement agencies and individual victims report thousands of identity theft fraud cases such as this to the Federal Trade Commission (FTC), which then lists them in its annual Consumer Sentinel Network (CSN) Data Book — a fixture since 1997.

According to the CSN, it received 42,547 more identity theft complaints in 2014 from 2013 (290,099 to 332,646) — a significant increase — which makes it the FTC's No. 1 complaint category again. Thus, identity theft has soared and still continues to be a major problem for consumers and businesses.

Here are ways you and yours can avoid this growing scourge.

Common identity theft frauds

Government documents or benefits fraud

On March 20, the FBI reported that it had dismantled a multi-state fraudulent criminal organization and sentenced its ringleader, Young-Kyu Park, to six years in prison for selling authentic documents to illegal immigrants for $3,000 to $4,500, which they used to obtain real visas and driver licenses. The immigrants then used these fake documents to establish their residency as U.S. citizens and fraudulently apply for other benefits. According to the FBI, Park pleaded guilty to several charges, including producing false identification documents, conspiracy to steal government property and money laundering. When his prison term is up, he'll be deported to South Korea the FBI says.

Government documents and benefits fraud complaints for the general population increased significantly from 34 percent of the total identity theft complaints in 2013 to 38.7 percent in 2014 with the total number of complaints increasing from 98,634 to 128,734 or an overall increase of 30,100 complaints.

The subtype category, "tax or wage related fraud," accounted for most of the change with the percentages increasing from 30 percent to 32.8 percent and the complaints rose from 87,030 to 109,108 or an increase of 22,078. A major portion of this type of fraud is linked to identity theft tax refund fraud, which accounted for $5.8 billion in 2013.

For a comprehensive analysis of the issues relating to this fraud, see my articles "Identity theft tax refund fraud: A growing epidemic," parts 1 and 2 in the March/April and May/June issues of Fraud Magazine.

The "government benefits applied for/received fraud" subtype saw its percentages increase from 2.4 percent to 4.1 percent, which accounted for an increase of 6,676 in the number of complaints. The other subtype categories, including "other government documents issued/forged fraud" (1 percent to 1.3 percent) and "driver's license issued/forged fraud" (.6 percent and .5 percent), saw minor changes in the complaint data.

There are valid reasons for the significant level of complaints for the "tax and wage related fraud" area, and these two scenarios explain them. First, there has been an increase in the identity theft tax refund fraud over the past four years and it cost the U.S. taxpayers $5.8 billion in 2013. The dollar losses for 2014, undetermined at this time, are expected to exceed those for 2013.

Secondly, many individuals have lost their jobs during the past few years, which has probably led to a sharp increase in scammers stealing their identities to rob them of their unemployment benefits.

For military consumers, "government documents or benefits fraud" accounted for a large portion of their total identity theft complaints, i.e. 44.7 percent or 11,762 complaints in 2014 (compared to 40.8 percent or 8,978 complaints in 2013), which is significantly more than the 38.7 percent reported for the general population in 2014. The subtype category "tax or wage related fraud" accounted for the majority of the total identity theft complaints with 38.2 percent or 10,065 complaints in 2014 (versus 34.7 percent or 7,654 complaints in 2013), which exceeds the 32.8 percent reported for the general population in 2014.

The "other government documents or benefits fraud" identity theft subtype categories for the military, namely "government benefits applied for/received fraud," "other documents issued/forged fraud" and "driver's license issued or forged fraud" reported insignificant percentages ranging from .4 percent to 4.4 percent in 2014, which was comparable to the 2013 data and the general population data for both years.

Phone or utilities fraud

On March 27, PECO, a utility company, reported that scam artists are calling some of its customers and threatening to shut off their service if they don't immediately pay their bills with reloadable debit or cash cards, according to Scam Targets Utility Customers Across the Country, by Nydia Han, March 27, WPVI-TV. A PECO official said, "since late 2011 — we've had 2,460 customers that have been targeted. About 340 of those customers have been taken by the scam for a total of about $365,000." Utility companies normally give a delinquent customer a 10-day notice to pay and never ask for payment via pre-paid or re-loadable cards.

The complaint percentages for "phone or utilities fraud" category for the overall population decreased insignificantly from 13.6 percent of the total complaints in 2013 to 12.5 percent in 2014 while the number of related complaints increased from 39,434 to 41,581. The subtype categories "utilities – new accounts fraud," "wireless – new accounts fraud," "telephone – new accounts fraud" and "unauthorized charges to existing accounts fraud" all changed insignificantly from 8.9 percent to 7.6 percent, 3.5 percent to 3.5 percent (no change), .6 percent to .6 percent (no change) and .6 percent to .7 percent respectively.

The "phone or utilities fraud" category for military consumers accounted for 12.8 percent of its total complaints for 2014, which was a slight decrease from 14.5 percent in 2013 but was similar to the 12.5 percent for the general population for 2014. The number of complaints decreased slightly from 3,390 to 2,404. The subtype category "utilities – new accounts fraud" accounted for most of the "phone or utilities fraud" category complaints in 2014 with 8.3 percent, which is down slightly from 10.1 percent for 2013 and exceeded the 7.6 percent reported for the general population. The other subtype categories "wireless - new accounts fraud," "unauthorized charges to existing accounts fraud" and "telephone – new accounts fraud" reported minor percentages of 3 percent, .9 percent and .6 percent respectively for 2014, which closely matches that for 2013 and the general population for 2014.

Employment-related fraud

Joseph Winstead, a Washington, D.C., postal worker, pleaded guilty to fabricating court paperwork to bilk the USPS out of nearly $40,000 in unearned wages in three years, according to You won't believe these cases of employee fraud, by Jared Bilski, HRMorning. He claimed that he had jury duty for 100 days for an extended federal trial. He used the fake documents to apply for reimbursement of wages and claimed he was excused from work when the trial began.

Employment-related fraud for the general population decreased to 4.8 percent in 2014 from 5.6 percent in 2013 or to 15,967 from 19,934 complaints. The same category for military consumers registered 2.7 percent of the total complaints in 2014 compared to 3.4 percent in 2013, which was significantly less than the 4.8 percent noted above for total complaints for the general population.

Loan fraud

On February 15, brothers Scott and Kevin Lees pleaded guilty to a $28 million mortgage loan fraud scam dating back to 2005 that involved 34 properties and dozens of banks. They created false loan applications and used forged signatures and fake financial and construction-related documents. The duo made about $1.5 million in loan commissions from these fraudulent loans. Banks lost more than $10 million in the scam. (See Mesa brothers get prison in $28M mortgage fraud scheme, Feb. 15, by Robert Anglen, The Republic.)

The complaint percentages for "loan fraud" identity theft increased from 1.9 percent to 4.4 percent in 2014, while the complaints increased slightly from 11,312 to 14,636, or an increase of 3,324. The percentages and total complaints for the subtypes "business/personal/student loan fraud," "auto loan/lease fraud" and "real estate loan fraud" changed insignificantly.

For military consumers, "loan fraud" identity theft accounted for 3.5 percent of the total complaints in 2014 (versus 4.3 percent in 2013), which wasn't significant compared to the 4.4 percent reported above for total identity theft complaints for the general population. Their subtype percentages for both years were similar as the percentages for the same subtypes for the general population.

Other identity theft fraud

This category of identity theft fraud for the general population decreased from 23.5 percent in 2013 to 21.8 percent in 2014 while the complaints increased from 68,163 to 72,516 with the "miscellaneous" and "uncertain" subtypes accounting for most of the change with 11.2 percent and 3.3 percent respectively. Each of the other 10 subtypes all changed insignificantly in percentages. The "data breach fraud" subtype category appears for the fourth time in the CSN data notebook and accounted for only 2.1 percent of their total complaints, which indicates that most of the identity theft resulting from data breaches isn't reported to the FTC.

The "other identity theft fraud" category for military consumers registered 16 percent of their total complaints in 2014 versus 8.4 percent in 2013 — a significant increase comparing both years and the 21.8 percent for the general population in 2014. Except for the "uncertain fraud" subtype category, which accounted for 6.1 percent of the total identity theft complaints for military consumers, all of the other 11 subtype categories reported insignificant numbers.

Identity theft complaints by age

Figures 4 and 5 on below include identity theft by age. (Note that the total identity theft complaints by age reported in Figure 4 don't coincide with the total identity theft complaints reported in Figures 1 and 2 in part 1 of this article in the July/August issue. This is because not all victims report their age when they file their complaints. In fact, 64 percent of the victims who filed an identity theft complaint in 2014 reported their age compared to 69 percent in 2013.)

The total identity theft complaints by age reported in Figure 4 increased to 212,698 in 2014, which is a increase of about 13,899 from the 198,799 complaints by age reported in 2013.

The good news is the complaints for the age groups of "20 - 29" and "70 and over" experienced a decrease in complaints: from 39,058 to 37,568 and 16,869 to 15,886 respectively in 2014. The bad news is that even though the complaints for most of the other age groups increased insignificantly, the complaints for the "50-59" age group increased significantly from 33,823 to 41,020.

The 19-and-under group accounts for 6 percent of all the complaints, which increased by about 187 in 2014 from 11,875 to 12,062 complaints but decreased significantly from 16,045 complaints or by about 3,983 complaints from 2012. Combine this age group data with the sharp decrease in complaints in the "20 - 29" age group from 57,178 complaints in 2012 to 37,568 in 2014, and we have really good news that hopefully represents a trend.

I expected a decrease for these two age groups over time because of the U.S. Credit Card Act, which went into effect February 2010. The act bans a consumer under the age of 21 from applying for a credit card unless someone over the age of 21 promises to act as a co-signer on the account or provides assurances that the underage applicant has the resources available to pay off the account. It appears that this law might be having a positive effect; that's great news for the long-run impact on credit card fraud. (For an analysis of this law, see my column in the January/February 2010 issue of Fraud Magazine.)

CSN state ranking for identity theft complaints

The CSN report includes a table that lists the identity theft complaints per 100,000 population and the total identity theft complaints for all 50 American states. The top 10 states include No. 1 Florida again — which experienced a minor increase in complaints from last year — with 37,059 complaints (versus 37,720 in 2013) or 186.3 complaints per 100,000 (versus 192.9 in 2013) population followed by: Washington, 186.3; Oregon, 124.6; Missouri, 118.6; Georgia, 112.7; Michigan, 104.3; California, 100.5; Nevada, 100.2; Arizona, 96; and Maryland, 95.9.

The complaint rate for Florida is significantly higher than second-ranked Washington and the rest of the states. South Dakota once again has the best statistics with only 232 complaints, or 36.3 per 100,000.

Many of the top 10 states — especially Florida — are no surprise because their populations include a significant number of retirees and minorities. Is this because these groups are relatively more susceptible to identity theft compared to other age groups, or is it that fraudsters direct a higher percentage of their attacks against them? This answer would be hard to quantify but it would be interesting to determine.

CSN metropolitan area ranking for identity theft complaints

The CSN report also includes a ranking of the 50 largest metropolitan areas for identity theft complaints per 100,000 and total complaints for each reported area. The Miami-Fort Lauderdale-West Palm Beach, Florida, area again leads the top 10 metropolitan areas in 2014 but with a minor drop in complaints from 18,941 in 2013 to 18,428 in 2013 or 316.2 per 100,000 population in 2014 versus 340.4 in 2013. Following are the remaining nine: Seattle-Tacoma-Bellevue, Washington, 207; St. Louis, Missouri, 204.4; Tallahassee, Florida, 189.1; Naples-Immokalee-Marco Island, Florida, 172.5; Olympia-Turnwater, Washington, 159.3; Portland-Vancouver-Hillsboro, Oregon, Washington; 159.2; Pueblo, Colorado, 156.1; Jacksonville, Florida, 154.6; and Detroit-Warren-Dearborn, Michigan, 151.9.

The complaint rate for the Miami-Fort Lauderdale-West Palm Beach, Florida, area is significantly higher than second-ranked Seattle-Tacoma-Bellevue, Washington, area and the rest of the cities. These rankings are no surprise because these cities include relatively more retirees and minorities. Of the 50 reported largest metropolitan areas, the Cleveland-Elyria, Ohio, area has the best results with 2,155 complaints or 104.4 per 100,000.

Fraudsters hitting the taxpayers, military consumers, minorities and elderly relatively hard

We can conclude one important fact from these statistics that supports the FBI's statement that identity theft has been the No. 1 fraud problem over the past 10 years. The FTC 2014 Data Book shows an overall increase in complaints of 42,647 or 14.7 percent in 2014. Is this a disaster? No, but it doesn't call for a parade either.

A closer look sheds some light on this. A majority of the overall increase in identity theft complaints is accounted for by one identity theft subtype — "tax or wage related fraud" — whose complaints increased by 30,100. Of the 30 identity theft subtypes, all of their percentages actually increased except tax- or wage-related fraud. Thus, excluding this subtype, the aggregate effect for the other 29 subtypes was an increase of approximately 12,500 complaints in 2014. Hopefully, the U.S. Internal Revenue Service can improve its filtering system to better detect fraudulent tax refund returns and develop policies to defer paying refunds until the tax return data can be verified. Identity theft numbers then should decline.

Perhaps ACFE chapters can work with organizations and local officials to help educate targeted groups, including the military, minorities and elderly. As this report shows, the top 10 states and cities should be given close attention. Of course, long-term programs to educate all community members is the main key to reducing identity theft.

Robert E. Holtfreter, Ph.D., CFE, CICA, CBA, is distinguished professor of accounting and research at Central Washington University and the author of the "Taking Back the ID" column in Fraud Magazine. He's also a member of the ACFE Advisory Committee and Fraud Magazine Editorial Advisory Committee. His email address is: doctorh007@gmail.com.

Takeaways for combating identity theft

The general categories of identity theft frauds reported in this article are driven by numerous common, nefarious schemes that continue unabated. The bad news is that cybercriminals will continue to develop new schemes related to each of these general categories. None of us can let down our guards.

As you know, we lose control of our personally identifiable information (PII) when we provide it to organizations. We run the risk of fraudsters compromising our PII via many types of internal and external causal factors. We expect organizations to safeguard our PII, but they often can't or won't control risks.

Consumers can become victims of two schemes, in particular:

New credit card accounts fraud. Fraudsters often steal "pre-approved" credit card offers from mailboxes or from the trash after recipients discard them instead of shredding them. (Yes, this old scheme is still prevalent.) What to do? Simply call toll-free 888-567-8688 (provided by the national credit reporting agencies) to remove your name for five years or permanently. If you select the permanent option, you'll be mailed a "Notice of Election to Opt Out" form to complete and return.

Tax or wage-related fraud. To help reduce this risk, file your completed tax forms as soon as you receive all of the necessary documents. Of course, it's not guaranteed that you won't become a victim because a fraudster could be filing your return on your behalf in the early part of the tax season. If the IRS receives his version of your tax return, then you'll have to explain to the agency who you are and try to reclaim your tax refund.

Most of us know by now that we should never carry our Social Security cards in our wallets or purses or give the numbers to others unless absolutely necessary. Always secure your PII at home. If you're an ACFE member, learn about phishing schemes from my "Taking Back the ID" columns in past issues of Fraud Magazine.