Document Fraud: Definition, Detection & Prevention

Everything you need to know about document fraud: what documentation fraud is, the types of document fraud, how to detect document fraud, and more.

  • Brianna Valleskey
    Head of Marketing
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Bank statements, Social Security checks, W-2 forms: These documents are frequently the target of scams, fraud, and identity theft. Manipulating documents used to be a challenging task— before digital transformation took hold, that is. 

Today, data scraping and image editing tools make it easier to find personal information and design a forged document. And if you're not careful, you could fall victim to it as either the receiver of the false document or by having your identity (or assets) stolen.

It's a challenging situation to be in, especially when you're a loan officer or auditor responsible for poring over these documents to ensure authenticity and assess risk.  

If fraudulent documents are causing you to lose sleep--you're not alone. One mishap could cost your organization thousands, if not millions, of dollars. 

With the proper knowledge, you can minimize the risks of accepting false documents with proper fraud document detection tools.

What is document fraud?

Document fraud is a deliberate scheme that uses fraudulent documents to gain financial benefits, acquire property, or illegally enter a country. Instances of document fraud include activities such as opening a bank account by presenting a counterfeit identification or exploiting another person's Social Security information.

It's a crime people commit towards financial institutions, government agencies, and other entities to acquire something they otherwise couldn't. Unfortunately, it's prevalent in the United States and other countries around the world.

Pile of documents labeled as "scam."

What are the types of document fraud?

There are numerous types of documentation fraud. Some aim to stealing someone's identity. And others are designed to create a fake identity to defraud their way into application approval. For instance, creating a passport with a phony name and information to enter a country. 

There are numerous ways criminals use fraudulent documents to swindle companies and governments. Here, we'll focus on the most common. 

Image fraud

Image fraud is a form of identity theft. For example: Someone loses their wallet, and it falls into the wrong hands. A scammer then takes the ID, scans a copy, and uses it to obtain assets (i.e., bank account, loan, or apartment). To make it believable, the criminal switches the photo to theirs using Photoshop or another photo manipulation tool.

Identity theft

Identity theft is when someone attempts to steal the entire identity of another individual. For instance, using their license, Social Security number, and other personal details to open accounts, buy vehicles, or even open businesses. 

You may even find a person creating social media accounts with someone else's name, photos, and personal information in the digital world. 

Modified documents

Mail theft is still a big deal in our modern world, but identity thieves don't have to snatch envelopes from your mailbox. Instead, they can hack your email, accounts, or even your computer using malware. 

Once they have their hands on your precious documents, they're free to modify them as they please. Modified documents are genuine documents with slight manipulations and forgeries, like a bank statement with a different name and date than what was originally on the document. 

The goal here is to trick a bank into approving them for a new credit line. If the financial institution doesn't have the means to identify the fraudulent document, the scammer may get away with it. 

False documents

False documents go hand-in-hand with identity fraud and consists of a fraudster passing off someone else's documentation as their own. To create false documents, scammers make alterations—like changing the photo on a passport or the account number on an income tax return. 

Illegitimate documents

Not to be confused with false documents, illegitimate documents are entirely fake. They're made from scratch, containing most of the details of an authentic document. Except, they may lack a hologram or other characteristics used to deem a record legit. 

These scams are more sinister (and costly), since criminals use them to create fake checks, money orders, and invoices. 

The four tiers of document fraud

An identity document that could potentially be fraudulent.

There are four levels of document fraud, with tier one being the most severe. Here's a quick breakdown of each. 

Tier four

Amateurs typically commit this level of document fraud. These documents are poorly designed or manipulated, making it possible to catch discrepancies with the naked eye. For example, changing a “5” to a “9” on a check using a pen. 

Tier three

Slightly more sophisticated attempts to manipulate or create document templates are considered tier three. While not as easily detected at first glance, it’s not impossible. Identifying manipulations requires knowing number formatting and recognizing data inconsistencies. For instance, a bank routing number might have too many numbers. 

Tier two

If you’ve seen the movie, "Catch Me if You Can,” it’s a prime example of tier two document fraud. The main character creates counterfeit payroll checks that look exactly like those distributed by an airline. 

It's highly sophisticated, using the right paper weight, magnetic ink, logo, and other characteristics to determine authenticity. However, with the right technology and expertise, minor variations in font, layout, and security features can be detected. 

Tier one

Top-tier scammers at this level don't need forgery skills. Instead, they steal blank documents from supply chains, banks, and other institutions. Then they use these legitimate documents to commit fraud — making it almost impossible to detect. Thankfully, this rarely happens. In most cases, these criminals steal tier-two counterfeits from other scammers. 

Why was document fraud so prevalent in 2020?

 A person reviewing documents for fraud.

According to the Federal Trade Commission, 2.2 million fraud reports were filed in 2020, and consumers lost over $3.3 billion in 2020 (a $1.8 billion increase from 2019). So, what made document fraud so much more prevalent in 2020? 

When the COVID-19 pandemic hit, people had to change how they went about their day-to-day lives. They were forced to go online to shop, apply for benefits, and perform other everyday tasks —  which put them at risk of having their data stolen by criminals. And it was prime time for those criminals, especially with unemployment benefits rolling out en masse. 

Government agencies caught wind and warned citizens about scammers on the prowl. Unfortunately, Americans still lost over $145 million to fraud relating to the pandemic. Fraudsters went after people's stimulus payments, unemployment, and other government benefits. Roughly 206,000 reports were filed between January and September in 2020. The median loss was $300, but it was much higher for elderly Americans (who are most prone to these scams).

Fraudsters are continuing to exploit COVID-19 across the world now. If you're worried you were a victim of document fraud in the United States, then you can file a complaint with the Federal Trade Commission.  

Document fraud laws and penalties

Forgery, counterfeiting, and altering documents are considered a crime in all 50 states. It can ruin the lives of the individuals subjected to fraud. Plus, it can cause irreparable damage to the targeted organizations. 

Criminals practicing document forgery can face jail or prison time, significant fines, probation, and restitution. Committing forgery in Oregon, for instance. can mean probation and community service or five years in prison and a fine of $125,000. The punishment depends on the severity of the crime and whether it's a felony. 

How Fraudulent Document Detection Has Evolved Over Time

Two people examining documents together to determine if they are fraudulent.

The detectives "Catch Me if You Can" hired experts to use magnifying glasses and other methods to determine the authenticity of counterfeit checks. It's a long and arduous task that often yields no results. 

In the past, financial institutions didn't realize a check or document was a fraud until the scammer was long gone. Thankfully, there are tools you can use today to easily detect and prevent document fraud before it happens. 

But before diving into the software tools you can use, here are several tips to prevent and detect document fraud. 

How to Detect Document Fraud?

Prevention is the best form of medicine for the human body and the body of an organization. Creating a system that guides your employees through the process of document fraud prevention is critical. 

Here are several things you can do to prevent document fraud:

  • Learn to identify authentic documents you frequently accept (bank statements, social security statements, etc.)
  • Look for seals, stamps, and other marks of authenticity
  • Check the validity of documents before accepting
  • Contact law enforcement if you suspect the document is fraudulent
  • Create secure documents to prevent scammers from using them for fraud (i.e., using polycarbonate for ID documents, micro text, and see-through windows)

Detecting document fraud

There are two ways to detect documentation fraud. You can either manually compare them to original documents or use AI-powered technology to do it for you. The former is tedious and leaves room for human error. 

Here's a handful of steps your fraud document detection process should include:

  • Looking for inconsistencies in document formatting 
  • Checking for spelling errors
  • Scanning for blurred text
  • Identifying suspicious applicant information (inconsistent addresses, phone numbers, birth dates)
  • Performing background checks
  • Requesting multiple forms of identification, employment, and income
  • Asking questions to cross-reference details on source documents
  • Using artificial intelligence software to detect fraud in seconds

If you're serious about detecting and preventing fraud in 2022, then you need a mix of technology and human expertise. 

How to Prevent Document Fraud?

More organizations are investing in fraud prevention. One report shows that in 2020, 84% of businesses planned to invest more or maintain the same budgets to prevent fraud. But they need to invest in the right technologies to be effective. Software today makes it easier for companies to identify fraudulent documents quickly. 

At Inscribe, our AI-powered technology helps businesses dramatically improve their fraud detection. Our platform uses file forensics, metadata analysis, and more to help teams understand whether or not they can trust a document. 

Plus, Inscribe can verify names, addresses, dates, and other information supplied by the applicant. It even parses information into your system, saving you time and effort. And our API also makes it a seamless integration into your setup. 

Inscribe customers like Crédito Real save hundreds of thousands of dollars per month while reviewing documents ten times faster. Our solution empowers businesses to grow faster by serving more customers, detecting more fraud, and saving more on operational costs.

Want to learn more about what Inscribe can do for you? Get started by contacting us today.

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