Rising scam risk calls for coordinated prevention strategy, study says

The growing risk to consumers posed by scams begs the need for a government-wide strategy to counter scams, track them accurately and agree on what defines a scam, a new study said.

The cost of this lack of coordination is steep, hindering efforts to prevent more than a half dozen types of scams that bilk Americans out of "large sums — in some cases their entire life savings," according to a report earlier this month by the U.S. Government Accountability Office, an independent watchdog agency that reports to Congress. The losses each year add up to $10.55 billion, per an FBI estimate, but financial services firms' suspicious activity reports to a Treasury Department unit suggest the number could be closer to $200 billion, GAO said.

The disparity stems from massive underreporting of scams, which inhibits intelligence-gathering at the FBI and at least a dozen other federal agencies whose officials the researchers interviewed over about two and a half years. Financial advisors who speak with people about their money and wealth on a daily basis play a critical role in the identification of scams, according to experts like James Creech, a director with law firm Baker Tilly's tax advocacy and controversy practice. But it can be tough for clients to share that they were scammed.

"You don't want to tell people that you're the victim of it, and so people don't really talk about it," Creech said. "There's a sense of shame. You don't want to talk about it. You sweep it under the rug and you move on with life."

Creech agreed "wholeheartedly," he added, with the report's main findings that having a government-wide estimate of the money lost to scams, agreeing on a definition of scams and establishing a national strategy to combat them could help federal agencies protect consumers. 

The watchdog issued 16 recommendations to the FBI, the Federal Trade Commission and the Consumer Financial Protection Bureau to bring together more resources toward fighting fraud and scams. The FBI responded with support for the report's call for a national strategy across agencies amid rising calls for better coordination across government to prevent scams, but it pushed back on aspects of the suggestions for a universal estimate and definition.

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The GAO report's findings

"Scams are a growing problem in the United States and around the world in both scope and sophistication," said the report by Howard Arp and Seto Bagdoyan, two directors with the GAO's Forensic Audit and Investigative Service.

"Officials from the 13 federal agencies we spoke with reported they were engaged in a range of activities related to countering scams," it continued. "However, each agency has its own mandate and authority, with each largely carrying out these activities independently. In carrying out their activities, they are not guided by a government-wide strategy to counter scams. While related strategies exist, none of them function as a comprehensive, government-wide strategy to counter scams. They are either agency-specific plans or do not focus on scams. The absence of a comprehensive, government-wide strategy poses risk for fragmentation of effort and overlap of activities, which can reduce their impact in protecting consumers. The desirable characteristics of such strategies include clear organizational roles, goals, and performance measures to gauge and monitor results, among other characteristics. Having a comprehensive, government-wide antiscam strategy with these characteristics would strengthen the ability of federal agencies to coordinate and strategically target their efforts to counter scams and thus help prevent consumers from becoming victims."

The securities fraud cases that ring familiar to anyone following wealth management industry legal matters represent only one type of scam described in the report. Investment scams involve fraudsters' promises of guaranteed returns through complex strategies and phony funds or other unregistered vehicles that may boil down to theft of client's money for personal use. Other forms of scams involve impersonation to gain a victim's trust, for example, when scammers pretend to be government officials, tech support, family members pleading for aid or potential romantic partners. Yet more involve tricking business owners into compromising their payment streams or fooling people into believing they have just won the lottery or otherwise come into big money.

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U.S. Government Accountability Office

Incident reporting void

The wide variety of scams (and possible distinctions between a "scam" and "fraud") adds to the difficulty of creating an agreed-upon definition, as does the underreporting of a lot of the criminal activity. As little as 5%-15% of consumer fraud victims alert authorities about being targeted by scams, according to Justice Department and Federal Trade Commission studies cited by the GAO's report. In 2021, authorities documented $566 billion in suspicious activity through firms' reports to Treasury's Financial Crimes Enforcement Network — out of which about $200 billion related to scams involving impersonation, romance, "person in need," tech and customer support, employment and impostors from government agencies or financial institutions.

Those figures explain why stakeholders, such as the American Bankers Association, the Federal Advisory Council to the Federal Reserve Board and the Consumer Federation of America, have mentioned the lack of a universal anti-scam strategy in public meetings or interviews with the GAO researchers. Last July, the Aspen Institute Financial Security Program started the National Task Force for Fraud and Scam Prevention, which will include government agencies, financial firms and the Better Business Bureau. The industry's giants see a void there.     

"Officials from one of the world's largest financial institutions told us that a national anti-scam strategy and a comprehensive federal government approach are needed to counter these criminals and the scams they perpetrate," the GAO report said. This strategy requires a whole-of-government response that partners with financial institutions, telecommunications companies, and social media companies to protect consumers. Further, the officials stated that there is a need for a lead agency to help coordinate efforts and prevent fragmentation."

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Recommendations for reform

To catch the scammers, the GAO instructed the director of the FBI to "lead a U.S. government effort to develop and implement a government-wide strategy to counter scams and coordinate related activities" through a collaboration with the heads of the CFPB, FTC, Treasury and any other appropriate agencies. The FBI agreed with that recommendation and acknowledged that stronger working relationships and enhanced data collection "will strengthen its ability to effectively identify and respond to scams," the report said.

On the other hand, while there is a "critical need for a comprehensive estimate that reflects
reported scam incidents to better inform policy and response efforts," the FBI noted that "it cannot reliably create an estimate of incidents not reported." And it rejected an existing Fed definition of scams as "closer with a general definition of fraud, rather than specifically addressing the unique characteristics of scams." But it pledged to create its own definition through a multiagency effort as well.     

"We recognize the challenges involved in, for example, arriving at a common definition of what constitutes a scam, estimating the extent and nature of scams affecting consumers and associated financial losses and crafting a government-wide strategy to guide federal agencies in countering scams," the GAO's report said. "However, undertaking these types of activities would help ensure an effective federal response to a significant risk to consumers from a type of crime that is growing in scope and sophistication."

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More compassion for victims

In addition, more widespread training across the industry on the red flags of fraud and scam, higher adoption of practices such as listing trusted contacts to verify that transactions were authorized and a tone of empathy for victims among auditors from agencies and institutions could stop scammers in the act and boost reporting rates, Creech said. It's often "heartbreaking to see" how easily "this fraud could have stopped before it began" by simply listening to the victim or following up on suspicious transactions by contacting a client's loved ones, he noted.

"You shouldn't victimize people twice. If they have been victimized by a scam, your mission should be to help them," Creech said. "It leaves them feeling victimized by the people who are supposed to be the watchdogs."