Advanced Tools and Techniques
The desired solution for effectively detecting and preventing fraud should start with an automated, statistically based approach to initial applicant screening. This initial screening will allow you to separate applicants with higher fraud risk from the general population. These high-risk applicants should then be fed through the manual fraud checks in credit origination, booking and funding. By rapidly screening new applicants, identifying and segmenting the few percent that are of highest risk, you will offset many of the negatives of the more manually intensive across the board process. Using this approach, the majority of your new applicants can flow through your decisioning process in less time and at a much lower cost.

Internally developed, statistically based automated approaches to initial applicant screening will require an investment in infrastructure, staff, time and data. Of these, the biggest challenge is lack of good data. Having robust data on known frauds is necessary to build predictive models. Losses are not typically investigated to identify frauds, and quality of data is further compromised by deficiencies in tracking customers through various systems. These difficulties typically result in a low count of frauds. Furthermore companies don't have access to predictive data like cross industry/company financing behavior (fraudulent companies hit multiple providers and show a distinct pattern), which a large commercial bureau like D&B has. Both of these factors will severely limit your ability to build strong and reliable fraud models independently.

If you do not have the necessary internal resources, time or, most importantly, data to build your own automated screening system, you should consider broad-based commercial fraud risk screening tools that are being developed by companies like D&B. D&B has been developing its solution in collaboration with fraud experts from 30 cross-industry companies including several from the leasing industry. These organizations have shared their unique insight into the problem, as well as provided data (over 15,000 frauds) to the development effort. D&B has contributed its own proprietary sources of fraud-predictive data and data management tools. The data was then combined with the analytical resources of Inductis and D&B to quickly and cost-effectively create fraud risk screening tools. These tools leverage sophisticated matching and analytical capabilities to:

• Profile high-risk patterns of recent credit seeking activity.
• Screen against D&B's Confirmed Misrepresentation database.
• Check consistency, validity and fraud risk of the address and phone.

These new screening tools, which can be used by any commercial credit extender, will be available in Q4 of 2004. Solutions such as this are extremely adaptable to the individual lessor's needs. For example, lessors focusing on turnaround time and booked dollar volume could set their threshold to review a very small percentage of applications (say 1 percent). Another company, for whom ticket size or fraud incidence rate was high and the turnaround time was less of an issue, could set their threshold to manually review a more substantial group of applicants (perhaps 20 percent to 30 percent) and have the opportunity to prevent more fraud losses. Figure 1 illustrates the effectiveness of D&B's fraud solution at various review thresholds - for example 52 percent of frauds are contained within the riskiest 5 percent of applications.

D&B is also working with a number of lessors and companies from other industries to create the largest repository of known commercial frauds and victims of identity theft. This tool will provide an additional level of screening to its users and is expected to become operational in the second half of 2005.

Commercial Fraud Is Here to Stay
Changes in the economy and approaches to business will allow it to grow further. Many lessors have already been burned by multiple frauds. If you have not been hurt by fraud, the clock is ticking as no company is completely insulated from the risk. The way forward is to adopt advanced screening techniques to identify a small proportion of high-risk applications for thorough investigation while routing the remaining applications through an efficient and fast approval process.

DAN RUCKER is managing director of D&B's Fraud Detection and Prevention Solutions.Working closely with D&B's customers, Rucker has lead a number of new product innovations at D&B, including Small Business Risk Insight (SBRI).These solutions help D&B achieve its aspiration, to be the most trusted source of business insight so our customers can decide with confidence.

SANDEEP TYAGI is managing principal and Founder of the consulting firm, Inductis and has led the firm through its rapid growth and success. Since 2000, Inductis has been bringing together strategy and analytics to achieve measurable results for clients.

ENDNOTES:

1. Figures are detailed estimates based on the following data sources: Association of Certified Fraud Examiners: Report to the Nation on Occupational Fraud and Abuse (2002), Encyclopedia of Fraud (2002); FTC Identity Theft Survey Report (2003); US GAO Report on Identity Theft (2002); Identity Theft Resource Center; US Office of Consumer Affairs; Nilson Reports; Coalition Against Insurance Fraud; National Insurance Crime Bureau; Health Insurance Association of America; Insurance Information Institute; Conning & Company; Gartner; ABA; National Check Fraud Center; Federal Reserve; Communications Fraud Control Association; Mortgage Asset Research Institute; D&B; company annual reports and 10- K's; Federal Reserve; SBA; 2002 Economic Census.
2. Doing Business As
3. New lease volume from: Letter to the Editor, New York Times, August 13, 2004, authored by Michael Fleming, President, Equipment Leasing Association.
4. Estimated based on observed fraud rates of .3-.5% for leasing companies.