Academic journal article Journal of Accountancy

Breaking Bad News to Victims of Identity Theft: Lessons from Medical Doctors; CPAs Can Better Help Clients Who Are Victims of Identity Theft by Learning Counseling Techniques Usually Used by Medical Professionals

Academic journal article Journal of Accountancy

Breaking Bad News to Victims of Identity Theft: Lessons from Medical Doctors; CPAs Can Better Help Clients Who Are Victims of Identity Theft by Learning Counseling Techniques Usually Used by Medical Professionals

Article excerpt

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Identity theft has moved from an unusual cottage industry to a ubiquitous plague where, because of their financial expertise, CPAs are often one of the first professionals to be consulted. Because of this, it is important for CPAs to act as first responders to this financial crisis and to be equipped with "first aid" remedies, including the ability to triage the risks.

Although identity theft is often referred to as a financial crime, this article treats it as similar to personal crimes. And as is the case with most personal crimes, identity theft is underreported. For example, in 2014, as many as 92% of victims did not report the crime to the police (Victims of Identity Theft, 2014, Bureau of Justice Statistics (Sept. 2015)). There are probably three reasons for this: (1) Many victims may not know for a long time that their identities have been stolen if they were not planning a major purchase (car, home, etc.) that requires credit checks; (2) the amount of money stolen may be so small (relative to the volume of transactions) that the victim may not want to be bothered by having to report it to law enforcement; or (3) the victim is protecting the criminal, perhaps because he or she is a relative.

Further, identity thieves have become so skilled and clever that airtight prevention is impossible. Thieves can penetrate encrypted personnel records and email exchanges. And the costs of identity theft to victims are grossly underestimated and often focus solely on the monetary value of the theft. Enduring social and psychological costs are typically ignored, even though these consequences may turn out to be far more irremediable than the financial losses.

In some cases, the CPA may be one of the first people to discover an identity theft. For example, a CPA may e-file a tax return and have the return rejected because a previous filing was falsely made using a client's identifying information. Some taxpayers forward unopened correspondence from the IRS to the CPA. When the CPA opens the correspondence, he or she discovers that the IRS believes the taxpayer is a victim of identity theft and must break the news to the client.

Because of CPAs' position as trusted financial advisers, it may be prudent for them to prepare to act as a type of first responder to this financial assault. Unfortunately, most financial professionals lack training in the soft skills possessed by professionals who regularly counsel crime victims. This article introduces some basics for counseling financially assaulted clients, using tools adaptable from the medical profession.

EXTENT OF IDENTITY THEFT VICTIMIZATION

Identity theft, according to the Federal Trade Commission (FTC), was the top complaint the FTC received for the past 15 years, increasing 47% from 2014 to 2015 as a result of a massive increase in tax-related identity theft (see "FTC Releases Annual Summary of Consumer Complaints," March 1,2016). According to the U.S. Postal Inspection Service and the White House, identity theft is America's fastest growing crime (see "Fact Sheet: Safeguarding Consumers' Financial Security," Oct. 17,2014). The Bureau of Justice Statistics reported that in 2012 the cost of identity theft significantly exceeded that of all other property crimes combined in the United States ("Identity Theft Now Costs Far More Than All Other Property Crimes Combined," by Erin Fuchs, Business Insider (Dec. 12,2013)).

In 2015, over 724,000 identities were stolen from the IRS's Get Transcript system, and of CPAs polled by The Tax Adviser and JofA, 59% said at least one of their clients was a victim of tax identity theft in the 2016 filing season. (For more on this year's tax identity theft survey results, go to page 36.)

SOCIO-PSYCHOLOGICAL EFFECTS ON VICTIMS

While the financial losses from identity theft are significant and the economic effects are far-reaching, the socio-psychological harm to victims is incalculable. …

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