Again, lessors may groan at the cost of investigating any one transaction. "But almost every lessor can give an example when they first learned of a fraud and took immediate action, and were able to recover," says Curt Zoerhof. You owe it to your company to enforce your liens and close your assets.

Another investigation worth doing is a review of transactions generated by each vendor. By conducting such a review every quarter, or as often as every month, equipment leasing and finance companies familiarize themselves with the habits and eccentricities of each vendor, thereby making it easier to identify information or procedures that seem out of place.

A third form of investigation is kicking the tires. "Hardly anyone goes out to meet people or inspect the equipment, but you need to do it sometimes," says Susan Rosenthal. One approach is to conduct one inspection per vendor each month or each quarter. At the very least, she advises, pick up the phone and talk to the vendor. "Have your antennas up," she says. "Ask questions about the equipment [and the lessee] to help ensure they exist.

" Rosenthal also suggests using extreme care in the execution of documents. "The days of issuing docs in advance are over," she says. The longer the time between document execution, payment and equipment delivery, the greater the opportunity for fraud. No matter how well you know the vendor or the lessee, it's almost never wise to do a "favor" by sending completed paperwork up front.

Who's Responsibility?

Whether or not your credit department should carry the entire burden of fraud prevention and detection is a matter for debate. Although many lessors-and credit departments-are comfortable with the responsibility, that doesn't mean it's always a good idea. As Dan Rucker points out, "In credit, you assume the data you're looking at is true. In fraud, you try to determine how true the data is, and what needs to be validated. Fraud detection requires a special set of skills and tools."

Of the D&B customers Rucker has interviewed, about half use their credit departments to identify and protect against fraud while the other half uses a separate anti-fraud group or security group that works outside the credit department. At Wells Fargo Equipment Finance, Zoerhof uses his parent company's centralized credit investigation system. At Great America Leasing, CEO Paul Usztok relies on both his credit department and his operations staff to watch for fraud and report red flags.

Ajay Pillai believes that the higher a company's business volume and the larger its transactions, the stronger the case for having fraud specialists. "You need different methods for verifying information and checking backgrounds," he says. "It's a different job."

Automated Solutions

To help lessors and finance professionals in their detection efforts, D&B will soon introduce new anti-fraud solutions that rate the likelihood of an applicant to commit fraud. "We're going to look more at the behavior of the fraudster than at the application data," explains Rucker. The D&B tools will use technology and analytics to perform leading-edge fraud-detection techniques. D&B's offering is designed to help lease and finance companies with small to medium business volume.

Firms with higher volume may be interested in a customized solution designed and built by the consulting firm, Inductis. Ajay Pillai says Inductis helps clients analyze their data to determine which types of applicants are most likely to commit fraud. The company then creates an automated, statistically based screening tool to evaluate every new applicant and identify those with high-risk ratings. Information on these applicants is then fed through manual fraud checks in credit origination, booking and funding. By rapidly screening new applicants and identifying those at risk, the lessor can avoid the expense and labor required to implement greater due diligence across the board.

Each solution is set to detect irregularities at a level the client can support. In other words, Inductis programs the model's working parameters at the level most cost-effective for the client.

Recourse

Because equipment lessors and finance professionals believe there is little they can do about fraud once it has occurred, they often do nothing. Marc Hamroff, managing partner at Moritt, Hock, Hamroff & Horowitz, LLP, doesn't believe that's always wise. "You have to think about alternative credit recoveries," says Hamroff. "If the vendor participated in the fraud, for example, you may have recourse [against the vendor]."

Accountants can be a source of recourse as well. Recent legislation imposes greater burdens on accountants to create financial statements that are accurate and don't mislead.

At the same time, both Hamroff and Susan Rosenthal admit that suing fraudsters can be expensive and time consuming. "Fraud is very hard to prove, because it requires intent," says Rosenthal. Fraudsters transfer their assets and there may be nothing to sue against. "Unless you know there's a pot of gold at the end," Rosenthal adds, "you may not want to go through with it."

Marc Hamroff believes lessors focus too much on credit scores. Instead, he thinks more emphasis should be placed on checking the authenticity of new customers. "We know it's hard," he says. "The challenge is to find a balance between being quick, profitable and productive, and being more careful." By using certain of the tools discussed here, equipment leasing and finance companies of every size and market segment may be able to do just that.

Susan Hodges of Silver Spring, Maryland, writes about leasing and other topics. Contact her directly at hodgeswrites@aol.com.