Business fraud is mounting nationwide, and the loss from a typical incident is more than three times larger than one from consumer fraud.
Moreover, "soft" fraud losses mislabeled as bad debt can make up more than 30% of an average commercial creditor's losses.
Though personal identity theft has seized much attention, some thieves have discovered that stealing a business' identity is relatively easy. A thief can even set up incorporation papers, procure a telephone number, establish an address at a storefront postal center - and maybe even buy an ad in the yellow pages.
For banks and other financial institutions, such fraud is of particular concern. Fraud disguised as bad debt boosts required loan-loss reserves unnecessarily. Know-your-customer regulations ask more from banks than ever before, and in a post-9/11 world are enforced.
Despite the clear threat, business creditors have responded sluggishly, a recent Experian poll of business executives suggests.
More than 70% of attendees at a recent conference reported that fraud is a concern, but many still rely on a manual review of the tools used for credit underwriting, perhaps looking at a single source, such as the credit report, to screen for fraud. And though 70% said it's important to automate fraud detection, fewer than 5% said they actually use an automated process to screen for business fraud.
The best tools for authenticating business-to-business credit applications go much deeper than just superficial checks. They use a variety of data sources to validate and verify information about the business and personal guarantors. This multifaceted view helps ensure that the application information is both accurate and truthful.
Authentication tools should look at business and individual application data and search for anomalies - such as a phone prefix that does not match the ZIP code or a tax identification number and phone number that cannot easily be corroborated.
In addition to complying with the law, automated fraud screening tools can help foil fraudsters who may seem legitimate at first glance.
Regulation B permits banks to ask for more information for validation. The question often is when and whom to ask.
When a bank asks for an applicant to substantiate specific information a funny thing tends to happen: The would-be fraudster disappears.
