For 5 years now, the Risk & Supervision Meeting conference has been an opportunity not only to present the results of a survey on fraud in the factoring and leasing sector, but also to exchange experience and knowledge by experts from the above-mentioned industries. The aforementioned survey is conducted by CRIF Ltd. to identify the most effective ways to catch fraud. The event itself will take place on 08.09.2022. The theme of the Blog means that we will focus on the survey of the factoring industry and zoom in on the most important - in our opinion - issues. As last year, our analysis will be based on a comparison of results from previous years.
Fraud Detection Techniques. Anomaly detection, network analysis, and analysis of publicly available data sources scored best.
Comment: The survey results on this issue have not changed over the years. Last year we pointed out that the National Register of Debtors would join the tools for verifying factors and buyers. After it has been in circulation for some time, it can be said that it makes it so much easier to investigate whether a possible counterparty is hiding the fact that, for example, restructuring proceedings have been initiated, that it is no longer necessary to call the court (thus reducing the verification time). At the same time, the risk remains that the introduction of mentions in the Register is dependent on the speed of the court / Bailiff in this regard. However, some proceedings "happen" for a longer period of time outside the knowledge and control of the court (for example, proceedings for approval of an arrangement under Article 210 et seq. Law - Restructuring Law). Nevertheless, the introduction of the NCR moves closer towards the creation of a unified (and free) system of verification of counterparties, the lack of which is still felt by respondents.
Obstacles. The lack of information on all unreliable customers (100%), the lack of cooperation between the insurance and factoring industries due to legal restrictions (71%), the inability to verify the authenticity of documents such as PIT/CIT returns (57%), or customer/dealer time waits to make a decision (57%) were cited as obstacles related to anti-fraud.
Comment: Invariably, information sharing in the finance and insurance sector remains at a low level. Even the introduction of the NCR has not sufficiently changed respondents' assessment of the obstacles, as it is still the requirements for the survival of, among other things, personal data that constitute the "wall" between the insurance and factoring industries, through which they cannot break through for many years. Is this surely the only reason? Interestingly, this year, the customer's expectation of fast processing of UF applications is also becoming, in the perception of factoring companies, an obstacle to countering fraud. Indeed, in the era of the multitude of available identity verification tools and the market's "push" for faster and faster financing, indeed, such factoring requirements may result in factoring companies being forced, in order to gain more customers, to abandon the several-step verification of the factoring company's and its customers' ability to pay, although this is definitely an undesirable situation and one that factoring companies should definitely avoid.
Types of risks identified over 3 years. Respondents see falsification of financial statements, internal fraud, money laundering and corruption at relatively similar (low) levels. Among the responses, cybercrime stands out, recording an increase as the only one.
Comment: In part, we attribute the increase in the risk of fraud in connection with cybercrime to the changes introduced because of the COVID-19 pandemic. This is because the pandemic has forced the majority of business activity to move online, which in turn causes methods of verifying contractors to rely primarily on either electronic contact or third-party identity verification applications, which have developed incredibly quickly, but by are also vulnerable to "childhood diseases" ... including contact with Polish courts. And this generates potential situations of opportunity for fraudsters. In this context, it remains only to recommend the use of certified, verified applications from trusted providers and with an established market position.
Other conclusions we derive from the analysis of survey results:
- Fake invoices remain a typical form of abuse every year. On this topic, it should be added that the National e-Invoice System (NSEF) has been piloted since the beginning of 2022. In 2023 (the term may migrate), the use of structured invoices will be mandatory for all. We would venture a thesis that this will allow factoring companies to have greater control and verification of the basic document that functions in the factor-factor-receiver relationship. The impact of the introduction of the system will probably only be seen in the results of the survey in 2 years.
- Factoring companies are focusing on verifying unusual relationships between factoring companies and their counterparties by analyzing authentic fraud cases, which is particularly gratifying. Introducing and learning how to use IT tools to help detect attempts at fraudulent transactions remains at the same time no less important than the ability to use the available tools, often free of charge, which are also mentioned in training courses.
- Final and by the way, unfortunately one can see now (recession behind the threshold?) an increase in fraud, including classic fraud, especially in the peri-construction industry. The slowdown unfortunately generates such situations, hence vigilance is recommended. The temptation to sell is high during this period and can be costly.
