A Steal of a Deal

A series of careful steps can uncover swindlers who want to take your company, and consumers, for a ride.A STEAL OF A DEAL

BY GEORGE LYNCH

THERE ARE TWO TALES OF ADvertising fraud that really stick in my mind. They occurred about 15 years ago, back when I was senior credit analyst with Tribune Newspapers.

In the first case, an advertiser approached our account executive (AE) a little past noon on a Friday. They wanted to run a $50,000 full-page ad in the Sunday newspaper, up against a hard deadline. The advertiser was selling a five-piece set of luggage for just $50. After they submitted a credit application, we were able to gather three credit references very quickly. How could they possibly be selling a suite of luggage for just $50? You guessed it; there was no luggage.

The second case involved mail orders of tobacco products. The prices were unbelievably low. The would-be client asked for a $200,000 credit line. Again, we were able to gather credit references in a very short time.

I was preparing to grant credit when I got lucky. There was a very minor question about their campaign. I called the credit applicant. As soon as I told the person who answered the phone who I was, the tone of his voice became excited and eager. He answered my question. Then, half an hour later, he called me back, still excited and eager, and asked if their application had checked out, and did I have any other questions.

I got off the phone, grabbed back the file and went through the information

point by point. We did not run the advertising. Months later, it was reported that a number of newspapers throughout the U.S. had run the campaign and collectively lost over $2 million in revenue.

For the unscrupulous, fraud is big business. Obviously, credit managers want to avoid being taken in. You’re not only protecting your company; you’re protecting consumers from losing money to people who have no intention of delivering the advertised product or service.

While you may be able to raise solid defenses in court, your company definitely does not want to incur the costs of defense if it is named in a lawsuit. Also, on the human level, you want to avoid the shame-faced feeling when you realize that you overlooked clues indicating that you were dealing with a fraudulent company.

MIND THE LOGIC GAP

As someone who has a reputation as a “fraud-buster”, I’ll give my No. 1 secret: I work very hard to avoid the human tendency to “fill in the blanks.”

It’s natural to be in a hurry, especially when your credit decision is on deadline. But if there is something that represents a gap in logic, as you review the available data–something that seems a little odd or doesn’t quite make sense–don’t fill in the blanks in your mind and make excuses for why this odd detail really has a benign explanation. When you see one of these logic gaps, it’s time to slow down and do a meticulous review.

For every advertiser that comes your way, follow the “know your customer” principle. Can you find their website? Can you find an actual street address? If not, that’s a red flag. If the buy is coming to you through an ad agency, have the AE give you more information on the company in question. See the sidebar, at left, for some of the questions you should be asking.

FIRST STOP: THE AE

What should you do when your logic-gap detector goes off? Start by talking to your AE. Ask if the advertiser at some point said or did anything that seemed odd or didn’t exactly make sense, but the AE put it out of their mind. You’re trying to get the AE to leap over their logic gap.

Sometimes, the AE will tell you they thought the same thing was odd as well, but the advertiser had a reasonable explanation. But if it is a scam company, the AE’s response is likely to be “Yes! How did you know?” As a result, now your AE is as suspicious as you are and may have additional suspect information to pass to you.

The credit application is usually your best starting point

for confirming your suspicions of fraud. It asks for some information that you can confirm independently, but also, it’s likely that you’ll have to trust your applicant regarding other information that can’t be verified. Regardless, if you’re dealing with a legitimate company, all the information on the application should add up and hang together. Not so with credit applications that represent fraud.

For instance, an agency may say it has 25 employees, but they’ve been in business for only a year. That sort of explosive growth is highly unlikely. The exception would be a new company affiliated with a better-established agency or a new company formed by experienced ad industry executives.

It’s almost always possible to verify online whether corporations are chartered in a particular state. If an applicant says their company is incorporated in a certain state but there is no record, that’s more reason to be suspicious.

If the applicant sent you a lot of documentation you didn’t request, look through it carefully. I once received a financial statement, but the accompanying accountant’s statement pertained to a different year. And I also saw a faked Dun & Bradstreet report where the “date printed” on the report was previous in time to the date of the “management interview.” If you subscribe to Dun & Bradstreet, pull the report on your own and compare.

ONLINE DUE DILIGENCE

Look at the company’s website. Does the application indicate it is a well-established company, in business for years, yet you can’t find their website? If the site does exist, does it seem sloppy? Does it have nothing but stock photos?

To properly research online information, use your internet browser to find a Who Is website. (There are many of them.) Who Is websites allow you to look up the domain of any registered website and get some basic information.

It’s especially important to look at the “created on” and “expires on” website dates. Fraudulent companies

A fraud company typically sets up references so that when you reach out to them, you are actually contacting the con artist or one of their confederates.

HEED THE TRIGGERS

WHEN DOING A CREDIT review, certain anomalies should always cause you to slow down and check out the applicant. For example: ■ Does the product or service advertised seem too good to be true? ■ Is the applicant over-excited and rushing you to make a credit decision? ■ Has the applicant flooded you with information you didn’t ask for? ■ If they slip past you and you do grant credit, are you suddenly flooded with credit references, even though their first campaign hasn’t even started?

These aren’t the only triggers. But when you encounter them, it’s time to pull back on the credit decision and look more deeply into the applicant. Continued on page 28