Husband & Wife’s Incredible $600K Rebate Fraud Was Preventable

Type “rebate fraud” into Google and check out the results.

A very well-known US company with a very high profile chief executive has been on the hot seat for around two years now. His company supplies fuel to motor carriers and has been in court over a rebate scheme that actually swindled the company’s biggest customers out of millions of dollars in promised rebates. The scheme was unsophisticated to be sure – the company kept making sales based on the rebate offer and then never paid the rebates.

What happens when a consumer turns the table and defrauds the enterprise?You may be thinking “sure – the odd person may defraud a rebate program for a couple hundred bucks.” You would be wrong.

How about this recent case where a husband and wife team used various false identities to cheat a computer company out of nearly $600,000?One company and one set of perpetrators.Wow.

So, how did they do it?

They identified weaknesses in the rebate program and took advantage of them.

 

Let’s use this case to have a closer look at how your company can drastically reduce your exposure.

Collect product serial numbers.

This is the simplest roadblock that a brand can put in place for preventing these sorts of incidents. It’s simple, and yet the rebate program in question did not have the product serial number as a requirement.  During the rebate fulfillment process, collect the unique serial number from every product sold, then bump them against a list of serial numbers that you know to be:

a)  Real serial numbers for real products

b)  A collection of serial numbers for which you know a rebate has already been claimed.

This is not a silver bullet to prevent fraud.In fact, there are no silver bullets but in this case, this very simple step may have been enough to prevent this scheme from succeeding.

Get a little help from Vladimir Levenshtein.

Levenshtein’s distance rule is a very useful tool for building incentive fraud detection algorithms. It helps you to automate a process whereby substantially similar variations on a name or address can be detected via computer.The couple in this case used a few fake personal and business names to receive 115 rebate checks for around $8000 – $15,000 each.It is highly unlikely that they would have had access to 115 unique postal addresses or that they would have 115 unique business names, so a detection algorithm based on the Levenshtein rule would most likely have started flagging claims early in the process.

Track sell-in, sell-out data.

Even when fraudsters are claiming to have purchased products that they never even bought, those products need to come from somewhere. Do you follow? In this case it may have been the company’s own outlets or at a retail partner, but each rebate claim should show where the products were purchased.The company then only needs to measure that against what inventory they know to have entered the location. Goods that never went to a location can’t be sold out of that location, so this would flag the claim for further investigation.

Go digital

It sounds like in this case the defrauded company’s offer was a traditional mail-in type rebate program. Given that the fraud took place between 2002 and 2008, it was definitely more difficult to run a digitized program back then, but we’re looking at what you can do for your company now, right?

One great thing about that is…

If you run your redemption processes online, you can start to track unique digital footprints such as IP addresses.So if this couple in question was using their home PC to submit all of these fraudulent claims, once they started to submit claims outside of the parameters of the rebate offer, the software would tell them that they had reached the limit allowable for their device and prompt a phone call to the rebate fulfillment company. Again – this is not a stop all, this is another speed bump to reduce access for the fraudsters.

A mobile rebate redemption application tightens the net.

People love convenience and they love their phones.There is no more convenient way to enter a rebate claim then by doing so right from the customer’s own mobile phone.Providing the consumer with a simple redemption process adds enormous value for them and make them happy, but there’s more at work here. Each smartphone has unique identifiers that can be tracked by your rebate redemption application. In this way, the brand is protecting itself from a phone being used to submit more claims than are allowed by a particular program.

So, here we have presented six ways that these fraudsters could likely have been stopped very early in their six-year scheme.Two of these steps, you could actually implement on your own today with some decent computing power and a workable knowledge of your spreadsheet application.

E-Book Fraud Prevention and Reduction

 

 

 

 

 

 

 

I want to leave you with two thoughts:

First, technology enables us all. That means as technology improves efficiencies in how we all do our work, it also opens up new opportunities for criminals.This couple were a seemingly regular couple with decent jobs; they just couldn’t seem to control themselves when they discovered the opportunity presented by the vulnerability is the company’s rebate offering.Technology could likely have dissuaded them completely from their scheme, but may have exposed an opportunity to some more sophisticated fraudsters. We must stay on top of the latest technologies to reduce our fraud exposure because it is a sure thing that criminals will be staring on top of how those same technologies can present new opportunities for them.

Secondly, sad but true, the world of incentives is a world of fraud.  The amount of fraud being attempted in every program I have audited to date is always at least 2-3 times what the company had assumed it to be.Reducing the amount of fraudulent claims that your company pays out is a fantastic way to “find” extra money in your brand’s budget that can be put to much better use.

 

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KhanHarisHaris Khan is the manager of the Risk and Compliance department at 360incentives.com   Connect with Haris on Twitter at @HarisAKhan13 or on LinkedIn here.