Dealing with natural disasters: How to avoid fraudulent activities

More than one-third of Americans have been the victim of fraudulent activities after being personally or professionally impacted by a natural disaster, according to a Harris Poll conducted on behalf of the AICPA.

The survey also found that 48% of Americans said their personal insurance coverage doesn’t include protection against fraud-related losses. About 39% said personal insurance coverage does include protection against fraud-related losses, and 13% weren’t sure.

“In the aftermath of a natural disaster, you may see many individuals show positive behaviors, but you may also see unexpected negative behaviors,” Christine Cutti-Fox, director–Forensic & Technology Advisory Services at the AICPA, said in a news release. “Fraud can manifest in various ways, and whether you are dealing with the impact as an individual, family, or business owner, it is essential to stay informed and develop a comprehensive plan supported by appropriate documentation to facilitate effective recovery.”

This survey of 2,093 adults, including 284 business owners, was conducted in June.

Nearly two-thirds (64%) of business owners said they have insurance coverage that includes protection against fraud-related losses during disaster recovery, but 32% don’t have insurance coverage that includes such protection (4% weren’t sure).

“Fraud-related insurance coverage serves as a safeguard for financial security, offering protection against unforeseen incidents,” Cutti-Fox said in the release. “It can provide coverage for a range of fraudulent activities, including identity theft, cyber threats, insurance claims fraud, and employee dishonesty.”

Among the types of fraud respondents experienced, identity theft (14%) was the most common, followed by government-assistance fraud (11%) and loan scams (11%). Vendor fraud, utility scams, charity fraud, and insurance fraud all came in at 10%.

Fraud prevention tips

The AICPA’s Forensic & Valuation Services Section offered tips to help those affected by a disaster avoid becoming further victimized by bad actors:

• Identify trustworthy contracts before needing them and keep their information handy.
• Ask for identification and verify any contractor, government official, or charity worker that contacts you. Confirm their credentials by searching for the business/agency that they claim to be from and call them directly to verify.
• Before hiring a contractor, ask for their business license and verify that there are no violations and that they hold the proper insurance for the work that you may hire them to perform. Avoid doing business with or giving personal information to individuals selling services door-to-door.
• To protect against fraud and misunderstandings, obtain a written contract for all contracted services that outlines specifically your agreement with the contractor.
• Final payment should be made once all the work is done to your satisfaction. Avoid paying for services using wire transfer, gift cards, or cash. Fraudsters may ask to be paid in ways that can’t be traced, leaving you with no way to prove the fraud.
• Compare prices and beware of price gouging. Fraudsters may exploit disastrous situations by overcharging for services or materials.
• Before donating to charitable organizations, verify that they are reputable and legitimate.

AICPA RESOURCES

Insights related to disaster financial planning

Insights related to IRS relief for disaster victims

— To comment on this article or to suggest an idea for another article, contact Kevin Brewer at Kevin.Brewer@aicpa-cima.com.