The introduction of subscription fraud screening and ‘Background Checking’ as key components of an integrated risk management strategy can bring real benefit to your bottom line, contributing to a significant increase in fraud savings as well as providing operational efficiencies.

Based on estimates that fraud losses in the UK telecommunications sector cost some £866m(1) in 2006, Experian estimate that the use of shared known fraud, involuntary disconnections and subscription data would save the industry at least £25m per year – nearly 3% of the 2006 fraud losses. In addition to the real-time screening of subscription data for fraud risk, Experian recommends checking the background of employees and dealers to protect against the increasing threat of internal and dealer fraud.

Fraud is a significant source of revenue loss and bad debt, with losses in the sector estimated to be as much as 6%(2) of revenue globally. Amongst European telcos, it is thought that fraud accounts for somewhere between 30 – 35% of bad debt and for some operators, particularly those with aggressive strategies focussing on speed of decisioning and growth in market share, can be as high as 55% of bad debt.

Fraud covers any theft of service or hardware or deliberate abuse of voice or data networks where there is an intention to avoid or falsely obtain the reduction of legitimate charges. Fraud losses will arise from airtime and content charges, interconnect fees, handset and connection commissions and will impact on infrastructure and operational costs. Common fraud types include box breaking, ID theft, carousel fraud, call reselling, false insurance claims, cash-back failures and ‘SIM only’ contracts. These fraud types all exploit low or zero cost connections and commission schemes in a highly competitive business landscape, with customers expecting instant access to ever improving services.

Fraudsters range from dishonest customers trying to get something for nothing through to unscrupulous dealers, dishonest employees and criminal gangs or collusion between all four, attracted by the speed and anonymity of the environment which allows them to make a lot of money with very little risk of discovery. Clearly the best way to stop fraud is to catch it before it starts, by assessing the fraud risk of new customer registrations and reducing the risk of internal fraud and collusion by screening all employees and dealers.

An integrated fraud and credit risk management strategy is essential to prevent fraud undermining business profitability. A key component of this strategy must be appropriate fraud and credit risk assessment at the point of subscription. This screening process should cover:

• Ability to pay - can they afford the services requested?
• Intent to pay - will they pay bills as contracted?
• Stability - are they likely to see the contract out?
• Fraud risk screening - are they a genuine applicant?

In order to stop fraudsters connecting to your networks, fraud controls must include:

• zero-tolerance culture
• subscription fraud screening
• open learning and sharing culture

Every registration request should be checked for:

• matches with known frauds, ‘suspect’ data and involuntary disconnections data
• anomalies between the current registration data and historic subscriptions showing inconsistencies between registrations from the same person and links between registrations from different people
• multiple applications

In addition to external threats, across the telecommunications sector there has been a significant increase not just in the amount of internal fraud but also in its level of sophistication and the involvement of criminal gangs.

Approximately 70%(3) of all organisations have experienced attempted or actual staff fraud and evidence from both the US and UK suggests that between 30 – 50%3 of all fraud will involve internal staff. Background checking of identity, convictions and other personal and employment information can have a significant impact on hiring decisions, significantly reducing exposure to dishonest employees. Typically, only 85% of new employees recruited without a check would have been employed once checked. With average recruitment costs running at €10,000 and the average cost of resolving poor hiring decisions at €13,000(4) background checking makes good business sense.

All dealers, retailers and their staff, as well as all network employees including contact centre, sales, retail shops and logistics, should be subject to an appropriate risk assessment and background checking. This risk assessment will also act as a major deterrent to would be fraudsters and can be extended to cover temps and contractors.

Integrated risk management incorporating both subscription and staff and dealer screening can bring significant benefits to your business and should feature as a core component of your fraud risk management.

Paul Smith - Product Director, Fraud & Identity Solutions, Experian Decision Analytics – From the session held at the Experian Decision Analytics European Telco Forum 2007

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Sources
1. Source: Government fraud review published July 2007
2. Source FIINA
3. ePaynews.com March 2007
4. Figures from Background Checking.com, An Experian company

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