Warranty and Service Fraud Investigations

Detect, Investigate & Stop

Warranty and Service Fraud

Warranty fraud – an underestimated crime

Warranty Fraud and Service Fraud

Warranty fraud (also known as service fraud or service abuse) causes global damages in the billions. According to estimates, warranty fraud reduces the profits of many companies by up to five percent each year. The times in which warranty benefit claims during the warranty period were personally submitted to the seller or provider are over in many industries.

Warranty fraud is committed by sales or service partners as well as by end clients. Comprehensive services are essential to be able to compete via good customer service, usually supported by the Internet and call centers. This necessarily entails risks of misuse. Experienced fraudsters know how to use weak points in service procedures without leaving any noticeable tracks behind.

Secondary damages often exceed primary damages

It is worth mentioning that secondary damages often exceed primary damages, i.e. if fraudulently-obtained products are sold on via anonymous Internet platforms. These damages involve not only sales and pricing, but also the company’s reputation, as compliant customers suffer in the end.

How to analyze your risk and protect against warranty fraud

For effective protection against warranty fraud risk scenarios should be analyzed. Crucial is the absence or insufficiency of the early detection measures. Sales and service partners as well as corporate clients suffer from warranty fraudsters who exploit loopholes in their internal control systems. Employees of service partners and distributors often have access to information regarding agreements with manufacturers and serial numbers for high-quality products. Warranty fraudsters typically use uncontrolled access to such information in order to obtain warranty benefits. Even in the case of corporate clients detailed knowledge of service procedures is often used for fraudulent purposes. It is therefore important to have systems in place to monitor and investigate service fraud.

If warranty claims are verified and provided without direct client contact the risk of warranty fraud cannot be fully excluded. The internet, modern database technologies and central service call centers entail weak points which fraudsters can systematically exploit. Comprehensive service agreements (service level agreements) are also repeatedly abused. Also risky is the provision of replacement parts without prior verification that the defective part has actually been returned.

Typical examples of warranty and service fraud:

  • False or invalid warranty claims in order to obtain replacement parts
  • False claims submitted for services which have not been provided
  • Provision of false client data
  • Sale of replacement parts on the gray market

Analytical investigations often reveal fraud patterns: first-time fraudsters try a form of fraud. If it remains undiscovered, the frequency then continues to increase until extensive damages occur. Therefore, it is always worth it to nip warranty fraud in the bud as early as possible.

The following questions should be asked:

  1. Which weak points could attract warranty fraud?
  2. How does the typical warranty fraud occur?
  3. Which possible criminal profile can be established?
  4. Which pattern of warranty fraud is evident from company data?
  5. Which methods promise success in analyses and investigations?
  6. What evidence acceptable in court can be established?

How to investigate warranty fraud and stop fraudsters

Once corma GmbH is tasked with warranty fraud investigation, analytical investigators ask further questions: "What do the business processes which allow warranty fraud to occur look like?" is the first one. "How can criminals be stopped and damages made good," is one of the final questions that has to be answered. Between the two lies an investigative process which goes far beyond process analysis and the application of criminological intelligence. The task is to investigate unknown circumstances and to assemble all the findings in order to create a clear picture regarding criminals, fraud patterns, scope of damages and the exact measures which will prevent warranty or service fraud.

The analytical investigation work of corma GmbH consists primarily of the following mutually-supporting tasks:

  • Process analysis
  • Weak point analysis
  • Pattern detection (data-mining)
  • Link analysis
  • Auditing
  • Monitoring

corma's investigative Workflow and Analytics

First, corma compares the operational and logistical processes established for warranty benefits with the underlying data. This usually reveals possible weak points. For the preliminary investigation corma matches each analysis matrix used to the corresponding client requirements.
corma also provides support in the preparation and implementation of audits. This involves an analysis of sources of abnormalities with indirect sales and services. If warranty fraud is confirmed, negotiations for damage reparations often follow very quickly.
For fraud prevention corma offers monitoring system for the early detection of warranty fraud, which is implemented over a defined period of time. This allows new cases of warranty fraud to be stopped before new damages incur.

“Once the processes are understood, the next step is to establish hypotheses as to how a potential criminal would proceed. Each criminal leaves traces behind a specific pattern in the company data. Current analysis tools and methods allow us to identify these patterns and to critically evaluate them,” states Bastian Moritz, Senior Investigator at corma.


Bundled know-how against warranty fraud

The fight against warranty fraud is worthwhile in many ways. Not only do negotiations or legal measures allow existing damages to be recovered (cash recovery), but future losses can also be avoided (loss avoidance). Together with the financial benefits of damage reparation and avoidance, these are many times greater than the investment in the analytical investigations. The most direct effect is shown by the so-called "event reduction": The investigation of illegal warranty claims can significantly reduce the total number of such events. A reduction of 15 to 40 percent is not uncommon.

Trusted advisor for our customers

An essential requirement for the successful work of corma investigators is the trusting cooperation with clients. Reputable advice and the confidentiality of company information is an important part of it. Data security is ensured by computer centers certified by the BSI. Furthermore, corma GmbH guarantees the observance of the applicable data protection laws during the provision of its services.