How To Diagnose A Fraud

How To Diagnose A Fraud

18 July 2022

In this month’s Expert’s Corner, Richard Pride discusses one of the most important topics for lenders: How to spot a fraud, which was also the theme of our recent Masterclass.

This article demonstrates how to use EQ Riskfactor to identify changes in client behaviour. It also highlights key features within the software which can help maximise and improve a user’s ability to spot trends as soon as they develop. Key areas covered include choosing suitable Portfolios and Grids and the importance of using the correct time scale when looking for potentially fraudulent transactions.

Choose The Right Portfolio

It is essential to choose the correct Portfolio for the task at hand. Many users, including our team when we were working at lenders, often start by going to their own personal Portfolio, something along the lines of “Richard’s clients”. 

While spotting the higher and lower-risk clients within your client list can be great, it doesn’t necessarily provide a reason for the risk. Therefore, we recommend that risk-based portfolios be set up and used to alert users to potential threats. For example, risk-based portfolios can help spot candidates for specific types of fraud, clients that are not performing well since recently being taken on, or clients with an increased perceived risk. 

The portfolios we recommend are:

  • Fast DSO 
  • Teeming & Lading 
  • Ones to Watch 
  • Erratic Trading 
  • Fresh Air  

You may already have some of these Portfolios installed in your existing EQ Riskfactor configuration. If not, please reach out to your account team, who can help you set up our recommended risk-based portfolios. 

Choose The Right Grid

Once you’ve chosen the correct Portfolio, it is also key to ensure that you apply the right Grid to it. With hundreds of measures within EQ Riskfactor, too much information can quickly become a distraction. 

EQ Riskfactor comes installed with many useful Grids, such as the ‘Cash Analysis’ and ‘Dilution Analysis’ Grid. It is paramount that the correct Grid is put against the right Portfolio. If the wrong one is applied, you may miss why the software flagged a particular client as a potential risk in the first place.

The Indicators of Fraud Grid

In the image below, we preview the Indicators of Fraud Grid. This Grid highlights the key areas of the Sales Ledger a user can focus on when first identifying potential fraudulent clients, as it focuses on the key ingredients of the sales ledger (Sales, Cash and Dilution), whilst also showing borrowing statistics.

Diagnose a fraud - EQ

Choose The Right Time Period

With the Portfolio and corresponding Grid selected, the next step is to apply the relevant Period. By default, EQ Riskfactor presents the ‘Today’ view, which shows the client’s most recent information for each Measure, as per the overnight load. 

When looking for trends, we recommend starting with either an end-of-month or average ‘Monthly’ view. A ‘Quarterly’ view often hides key trends, whereas a ‘Weekly’ or ‘Daily’ view can show too much information and, therefore, might exaggerate micro trends that are often benign changes in the Sales Ledger. 

View The Charts

Finally, we recommend that users take advantage of the Charts functionality EQ Riskfactor offers. Whereas key trends can be seen once a ‘Monthly’ Period has been applied, EQ Riskfactor can effortlessly convert trends into various types of Charts, which can very quickly show trends that may be overlooked within the raw data. 

Like many other features, EQ Riskfactor comprises various standard Charts, but the software also enables a user to select specific Measures. From here, users can produce ad-hoc charts geared towards the trends they hope to identify. 

In summary, it is important to remember that Portfolios, Grids, Periods and Charts work best when they are all carefully applied to the situation. 

This article demonstrates the importance of choosing the correct Portfolio and Grid when identifying and tackling potential fraudulent clients. If you are a client and want more information on setting up the correct Portfolio and Grid for your organisation, contact your Account Management team.

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