The World of Incentives Is a World of Fraud and Non-Compliance
Have you ever wondered why people commit fraud? Incentives fraud is more common than many manufacturers realize and without a comprehensive data management platform, the process of validating claims and catching fraudsters can be extremely challenging for manufacturers and distributors alike. Read on to learn how channel incentives technology can help to combat incentives fraud.
Where There Is Any Form of Incentive, There Will Always Be Fraud
Channel incentives open the opportunity for fraud. This is usually followed by some form of rationalization of unethical activity often motivated by external pressure. Whatever the reason, where money changes hands, fraud often exists, and channel incentives technology should be able to minimize or eliminate it altogether.
Evidently, it is much harder to detect incentives fraud than it is to prevent it. The perception of detection is one of the most effective ways to prevent fraud, since the fear of being detected acts as a control mechanism. However, there are best practices that your organization can undertake to uncover fraudulent activity. This includes using channel incentives technology to find patterns and trends in data, and to build preventative practices.
Incentives Fraud: How Much Is It Costing Large Brands?
There have been numerous real-world scenarios where large brands have lost millions due to fraudulent consumer rebate activity.
In 2014, a former Sprint employee pleaded guilty to pocketing more than $300K in customer rebate checks during a three-year scam. He would launder checks that were routed through multiple post office boxes opened in several different cities in the state of New York.
In 2017, Staples lost $1.4mil in revenue because a man created a computer program that generated thousands of 17-digit numbers a day that were auto entered on the Staples’ website.
Finally, in 2012, a Systems Engineer at 3Com pleaded guilty to one count of conspiracy to commit mail fraud. He submitted 98 fraudulent rebate claims to 3Com, totaling more than $634,000, and received more than $577,000 in rebate money.
Think About Moving to A Technology Driven Audit Process
Fraud has become more of an issue for many types of payment processes as technology has advanced. In addition, old manual audit processes that use people to randomly review claims are now a thing of the past. Manual audit processes are laborious, time-intensive and makes businesses more vulnerable to fraud. Best practice is shifting towards a technology driven audit; one that is systematic, scalable and flexible enough to adapt to new patterns and trends.
Kristen Conner, Director of Risk and Compliance at 360insights states, “The digital process allows us to systematically audit 100% of claims prior to payment and also helps to eliminate randomized auditing.”
The Power of Digital Information
In the past, incentive claims and proof of performance were submitted in paper form. Fraudsters would try different ways to test any system by duplicating receipts and creating different recipients. They’d try and find loop holes or opportunities in which they can attempt to commit fraud. When incentive input is received in digital form it allows for the review of mass amounts of data against known fraud patterns and trends. It also allows for the opportunity to change as the fraud is identified within the data.
There are three best practices to follow when it comes to using digital information:
1. Evaluate and look at all data points for compliance
2. Cross-check data points for consistency
3. Use mathematical algorithms to identify fraudulent patterns and trends
Kristen explains that at 360insights, “Generally we see the decline rates for new programs can be as high as 14% of the claim submissions. However, after the first few months, this rate dips down to as low as 4% as the individuals committing fraud see that you are paying attention.”
Do Your Channel Incentives Technology Stack Up?
The best way to combat fraud is to be diligent in your efforts. Here are three things your compliance system should be able to do:
- Prevention and Detection. Ensure all claims can be digitally audited for compliance to identify and reduce erroneous and/or non-compliant activity.
- Identification and Examination. Your system should offer reporting designed to identify and analyze transactions and enable trend identification & examination.
- Investigation. Formal audit reviews of consumer, channel incentives and resellers to identify un-substantiated claims.
Kristen Conner follows up with, “Generally speaking, the amount of savings realized for our clients through the prevention of non-compliant and fraudulent claims often exceeds the cost of delivering the service.”
Incentives Fraud Detection Best Practices
One of the priorities of any company is to operate better and to save valuable channel marketing dollars. Evidently, fraud detection should be a priority. To better combat incentives fraud, the following tracking methods prove most effective.
Track claims data from serial & license numbers
Serial and license numbers are a unique piece of data that can be indexed and captured from the transaction because they identify duplicates or off-format serial numbers used in fraudulent claims. This method allows you to track claims data from these numbers for products that have been sold.
Leverage invoices to capture transaction data
Invoices are one of the most accurate and effective way to capture transaction data. They help detect suspicious claims based on different invoice formats – other than what is used by the company, or invoice numbers that are out-of-line with claimed invoices that were submitted.
Capture the end-customer’s mailing addresses
Capturing the end-customer’s mailing address from invoices is another effective method. This can measure the customer’s geographic location as opposed to having the postal code of the reseller on claims submitted. Mailing address data can also be helpful for manufacturers to flag certain locations in the event of suspicious incentive claims.
These are just a few ways of how incentives fraud detection can aid your channel marketing efforts and reduce the amount of fraud paid out. Incorporating these tactics will not only alleviate an immense administrative burden but also remove the guesswork from manual random auditing.
For a better understanding of all the benefits that channel incentives technology can bring to the table, watch this 360insights webinar. Hear the compelling story from Bosch as they discuss how moving to a technology driven audit process helped to eliminate fraudulent activity within their consumer rebate programs and significantly increase the efficacy of enforcing compliance.