How To Use Internal Procedures to Protect Your Company From Discount Fraud

1. Don’t take people’s word for it – Engage in end-user verification

Your company wants to authorize the additional discounts to a specific end user, either through a partner or directly, when legitimate business reasons justify those discounts. That said - you will need processes in place to verify the legitimacy of the information being provided. The level of due diligence your company takes should depend on the level of the risk – often dictated by the quantity of the products sought and the amount of the requested discount. For example, one factor a company could examine when assessing the risk of the deal is whether there are large disparities between the requested components and the equipment necessary to operate the components.

When the risk appears low, it may be sufficient to verify the end user’s information via Dun & Bradstreet, the internet, or other publicly available resources. However, as the risk escalates, so should the precautions your company takes to ensure the end user is legitimate. That could entail ensuring that the sales team have vetted the proposed deal (by, for example, meeting the end user in person), receiving clarification from the proposed end user of exactly how the products are to be used, or even making a site visit to where the products will be housed.

Every deal needs to be evaluated across a protocol that intensifies the level of review required for approval based the risk associated with deal. The thoroughness of your investigation is the key first step to thwart potential abuses.

2. Get it down on paper – Ensure the deal is well documented

Here, “less” is certainly not more. Capturing the communications confirming the details of the deal is crucial to protecting yourself. In fact, the more written information documenting the specifics of the deal, the better. Documentation certainly begins with basic end user details such as company name and contact information. However, the requirements for a deal could also include D&B numbers and other indicia of legitimacy. If a deal goes bad, and it appears that fraud was used to obtain discounted product, you will want the documentation setting up the deal to make perfectly clear (1) your due diligence in asking the right questions, and (2) the misrepresentations by the fraudsters, so that you can prove that the deal was fraudulent at the inception. The more clear the documentation, the better position your company will be in to address the abuse.

3. Educate your employees

Educating your employees about how these schemes work and how to recognize them is key to prevention. You want your employees to understand your company’s processes, why they are critical, and the unsavory consequences of failing to identify fraudulent deals. You also need your internal sales team to recognize that today’s large “blue bird” deal leads to tomorrow’s lost sales opportunity.

You should consider periodic training on these issues. The frequency of training sessions can depend on how serious this issue is to your company. Some companies facing discount fraud schemes on a large scale ensure that their employees are retrained annually on the company’s screening and verification procedures.

4. Clearly establish the expectations and policies of your channel partners

It is often the case that a channel partner approaches your company requesting that you sell specified products at steeper discounts so that the partner can meet a pricing requirement of a customer. Whose responsibility is it to vet the deal? If you haven’t ironed out your expectations with your partners, then potential fraud looms.

You should consider developing documentation for your partners, similar to the documentation your own internal procedures should now require. This should include written verification of the end user’s intent not to resell the products, but to use them solely for internal use, and the collected reasons why the partner believes that the end user is genuinely purchasing the discounted products for its own use.

Additionally, it is important to communicate your company’s policies and protocols with regard to end-user verification. Educate your partners on the reasons your company is aggressively taking measures to prevent this fraud from occurring. Explain that discount fraud hurts honest channel partners when discounted products end up at a broker and are used to defeat a competing bid from an honest channel partner. Explain that you are taking action to prevent fraudulent deals, but that a successful program requires a joint commitment by the company and the channel partners. Importantly, provide corresponding training on how your program works.

Next month we will provide guidance on how to develop intelligence on the perpetrators of these frauds—staying ahead of the fraud is often your best defense.

<< Previous | 1 | 2

SHARE THIS ARTICLE