Due Diligence in Fraud Prevention, Part 1

[Charles Bacon]

Due Diligence in Fraud Prevention

There are countless financial instruments, business documents and corporate/financial structures which are legitimate and have value. However, the con man, huckster, fraudster and scammer will use everyone and everything to part you from your money.

Here are a few recommendations to try to stay away from frauds and scams:

• Check out all the claims made in sales calls or written documentation.
• Take your time. The fraudster needs you to make a decision on the spot. If you are being rushed aggressively, slow down even more, or just stop right there.
• Call your state's securities regulatory office and check if the party has violated securities laws.
• If someone claims to be an expert in something that sounds too good, and especially if your attorney, accountant or financial planner never heard of the program before, cross check with people you know to be true experts in the area, although the best course of action is to simply say no and move on.
• Maintain adequate internal controls to prevent internal frauds, especially when going through major corporate changes.
• The most successful frauds are schemes where many people are involved, and perhaps only one person knows all of the details, and multiple locations are involved. Keep looking until you find all the parts.
• Hire competent, respected and experienced attorneys, accountants, and auditors, and bring in specialists on all major corporate actions.
• Does the company have a phone number that works? Call it. Also, call the phone company's Information line and check if the phone number is for the same company.
• Call the local Better Business Bureau.
• Call the local Attorney General Office.
• Never send money to a PO Box, unless you already know the firm.
• Don’t buy anything from a new supplier or vendor until you have verified that the company exists and, ideally, check their reputation.
• Never give out office equipment information unless you already know the party.

The best advice:
"If it sounds too good to be true….."
"I'm not so much concerned about the return on my principal as I am about the return of my principal." -- Will Rogers

A Few Fraud Prevention Resources:
Federal Bureau of Investigation (FBI)
Financial Crimes Enforcement Network (FINCEN)
Internal Revenue Service: Criminal Investigation Division (CID)
National Inventor Fraud Center
Secret Service: Financial Crimes Division
U.S. Postal Inspection Service
Securities & Exchange Commission (SEC)
The Better Business Bureau: Alerts
National Fraud Information Center

Next: Fraud Prevention, Part 2: Compiled List of Business-Related Frauds & Scams