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Venue
of Experience:
Since commencing business,
Michigan-based L.P.C., Ltd. investigators have specialized in the
investigation of this often overlooked exposure, handling cases both
domestically and in foreign lands. In fact, Loss Prevention
Concept's president handled his first warranty fraud investigation
in the early seventies in what may well have been the first
investigation of this kind.
Recognizing the
Exposure:
The potential of losses
through warranty fraud was long ago recognized by the automobile
manufacturers. In most cases, their problems relate to
"double dipping," that is the dealer charges the customer
for a repair and additionally submits a claim to the manufacturer to
be reimbursed under the warranty program. While auto makers
haven't completely eliminated these losses, they have significantly
reduced exposure by maintaining good control and
accountability. However, in most other businesses, this is an
area that is seldom recognized as a risk, and usually no control
whatsoever exists. In one L.P.C., Ltd. case, for instance, the
fraud had been going on so long that one major participant was a
second generation fraudster. He had learned the trade from a
retired predecessor he replaced ten years before we commenced our
investigation. It was estimated the fraud had been going on
for over forty years.
Investigation
Methodology:
When we refer to warranty
fraud, we are not referring to those isolated cases where an end
user may beat the system, but to fraud by the manufacturers'
dealers who are responsible for handling warranty adjustments and
replacements for which they are reimbursed by the
manufacturer. Our activity with warranty fraud is a blend of
investigation, audit and fraud examination, and in most cases we
work very close with clients' internal audit staff. Unlike
some types of investigations where unusual complications are
expected, results are usually predictable, unless the client's
internal records are deficient. We have worked so many
warranty fraud cases, we believe it is unlikely we will run into
anything we haven't seen and dealt with before. When a dealer
is defrauding a company using techniques he or she believes to be
original, unique and foolproof, we have probably encountered these
same techniques repeatedly during past investigations. What
makes these cases relatively easy to handle is the fact that in any
well run business, there will be a record of an end user who
allegedly obtained a benefit under the warranty program. After
reviewing statistics, records and obtaining copies of claim records,
we personally interview selected customers, posing as customer
service representatives. Obviously, this is handled in a
planned economical manner. When reviewing claims records for
the first time, it's not unusual for a manufacturer to find an
alleged customer, who received dozens, or even hundreds, of warranty
replacements. These folks, of course are either fictitious, or
are in league with the dealer. In other cases, hundreds of
"customer" names lead to the same address. Some
dealers are more devious, but because of our experience, these
deception attempts are usually obvious to our field personnel.
Interviewing
Experience:
An experienced insurance
adjuster can probably look at the dent in a car parked across the
street and estimate the cost of the repair within a few
dollars. By the same token,
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