Dun & Bradstreet News: Red Flags to Prevent Fraud, Upcoming Webinars

March 2009 - Volume 4, Issue 1

Identifying Red Flags Upfront Can Help Prevent Fraud, Waste and Abuse

With the call to action to reduce fraud, waste and abuse across government, many are wondering how to do so. The stories are all too familiar - a banned contractor in Iraq who continues to get military contracts by forming new companies, or the phantom company who received $2.1 million dollars from fraudulent Medicare claims before disappearing with the funds. What is not as familiar is how to solve the fraud problem. It may be easier than you think:

In the case of the banned contractor - a simple search into known information on the business and executives would have alerted the Pentagon officials prior to award
In the case of the phantom company - a simple query using business registration, postal records, telephone records, and credit records would have revealed no physical location, no records on owner - before claims were paid

Now is the time to shift the fraud paradigm from detection to prevention. Proper validation upfront - from a business perspective, management perspective and financial perspective can identify red flags which can help prevent fraud, waste and abuse.

Read more below or contact us to get a downloadable PDF of D&B's red flags checklist. Also, see related webinar information in sidebar.

Red Flags from a Business Perspective

Verification of a business existence and validation of stated facts from other third party sources is a good first step in fraud prevention. Here's what to look for:

No information confirming the individual or business exists
No confirmation of current business operating status
Discrepancies with start date, business licensing, and
tax registration
Mail-drop location misrepresented as actual business location
Address information is inconsistent with public records
Business location not equipped to conduct stated operations
Different businesses share common names, telephone numbers and addresses
Business background is characterized by risk, such as
convictions for fraud or theft
In business for years but there are no payment experiences (i.e. no telephone bill, no office supplies or electricity bill)
Payment experiences do not match the standard industry B2B profile for comparable firms (based on SIC)
Attempts made to hide negative information

Red Flags from a Management Perspective

The background and character of the CEO and other key executives can reveal past behaviors that could impose risk on a current or future business transaction. Management turnover can also be a factor. Here's what to look for:

Executive background is characterized by risk, such as
convictions for fraud or theft
Business principal/officer linked to other confirmed higher
risk or failed businesses
One person operation (only the executive is listed as an employee) operating a million dollar plus business
Executive linked to multiple similar businesses including several inactive ones in operation in a short time frame
Frequent management turnover

Red Flags from a Financial Perspective

Financial information can quickly uncover leading signs indicating the propensity for a company to commit fraud. Here's what to look for:

No record of line of credit or secured financing extended
to the business
Questionable trade experiences or documentary evidence
Credit references provided by previously confirmed higher
risk businesses
Financial data is misrepresented or altered
No indication of accounts or customers
High number of suits, liens and judgments
High Paydex score may reveal financial weakness
Financial Stress Scores indicate a company will be
out of business within 12 months
Payment summary indicates it has no payment data