Fraud Prevention Best Practices Allegiant Partners Newsletter 2004 and 2005 produced more than its share of large fraud cases in the leasing industry most notably NorVergence and more recently Allserve Systems which cost lessors an estimated $300 million and $80 million respectively. Per the ELTimes: "The Equipment Leasing Association Legal Committee met at ELA headquarters for two days January 9 and 10, 2006. Though the committee had a three page agenda, most of the discussion revolved around fraud against lessors and industry fair business practices with customers and channel partners. The tone set in the meeting is one of greater pro-activeness by lessors to prevent fraud and a new attention to leasing practices. The concern about fraud is driven in part by the emergence of what could very well be the latest major fraud against lessors by Allserve Systems, a company set up to provide IT and telemarketing services. The matter has all of the elements to raise suspicion - non-existent equipment, old equipment, fire, bogus addresses, doctored invoices and financials, bankruptcy and disappearing principals… " Allegiant Partners saw both of these transactions and fortunately we were able to avoid these and several other fraudulent submissions which have devastated many funding sources in our industry. We attribute these near misses to the rigorous underwriting standards and fraud checks Allegiant Partners has in place. Allegiant has not been lucky enough to avoid fraud completely but we learned early on what steps we can take to help reduce our potential exposure to fraud. Steps include: * experienced credit personnel, * Allegiant's Supplemental Application form, *Google and other internet search engines, *interviewing of applicants, criminal background checks, * and a multitude of business reports on our lessees, vendors and all the affiliated companies. The increasing complexity and sophistication of these criminals compounds the challenges facing lessors today. It is estimated that fraudulent applications cost creditors over $1 billion annually however exact numbers are uncertain as most companies do not specifically report losses due to fraud. This $1 billion is only part of the cost of fraud as lessors implement more stringent technology and underwriting standards to combat increased fraud risks. In addition to our internal controls Allegiant Partners looks to our brokers to help us validate our potential lessees and their applications. Allegiant has very little gray area in our submission requirements and expectations. We need and expect our brokers to protect us and provide all the information they ascertain on their customers. Coaching lessees to exclude a questionable applicant and/or using a ‘front man' to lease the equipment are grounds to immediately terminate a relationship. Part of the value of Allegiant Partners product offering is to analyze all of the credit information, both positive and negative, and determine if there is a way to get comfortable with the transaction. It's the surprises that our credit department uncovers that are the real deal killers, this includes splitting up larger transactions into 'app only' pieces without our knowledge. A guarantor with a 590 FICO or a bankruptcy isn't necessarily a deal breaker if there are offsetting strengths and/or additional stronger guarantors. We as lessors can be more forgiving and flexible when we know we have the whole story and the broker has proven he is providing all relevant information. In the indirect third party leasing niche it is imperative that funder and broker work together to help reduce fraud and keep our businesses and relationships healthy. For further information regarding Allegiant Partners, please contact: Doug Houlahan at 415-257-4200 x 205 or Visit www.allegiant-partners.com Allegiant Partners Inc. (Note: January 5 th Doug and his wife had a son, Brady Douglas Houlahan. Doug is a Capricorn, too, December 27 th . Drop him a note or card to share with his wife at: dhoulahan@allegiant-partners.com)
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