LEGAL
Outsource Financial Services Inc. (OFS) is a Denver-based company that provides a variety of business-to-business services to the trucking industry. In particular, OFS specializes in a form of financial assistance known as “factoring,” which helps trucking companies and others – most of whom are independent contractors – maintain an even source of cash flow.
Factoring is a form of debtor finance in which a business or individual sells its accounts receivable (i.e., invoices) to a third party (the factor) at a discount, in exchange for immediate cash. The practice is popular in the transportation industry because freight companies typically wait 60 to 90 days to pay their accounts receivable.
“I’d rather have more information than less, and CLEAR lets me look at anything I want,” says Rapaport. “I’ve had enough sleepless nights in this business. My appetite for risk is basically zero, so I do everything I can to avoid it.”
Individual truckers operating as a sole proprietorship and small transport companies often use factors like OFS to even out their cash flow. Suppose a trucker has just hauled a large load across the country for a midsize freight company. Instead of waiting two or three months to get paid, he can sell his invoice to a factoring company like OFS. If the invoice is for $1,000, say, OFS will pay the trucker $960 in cash and collect the full $1,000 when the invoice is due. An additional benefit for the trucker is that, along with purchasing the invoice, OFS assumes the responsibility – and risk – of collecting on the debt.
Risk Manager Aaron Rapaport is responsible for verifying the identity of the company’s clients and making sure that the invoices the company purchases are backed by legitimate business entities. His investigation software of choice is Thomson Reuters CLEAR because, “Our industry is a big target for fraud. We’ve been hit big a few times – once for almost a million dollars – and I don’t want that to happen again.”
Because OFS is a private lender, not a bank, its only protection against fraud is its own due diligence. The company uses fraud-detection software to learn as much as it can about its clients and the businesses connected to the invoices it purchases, and from whom it must collect. For Rapaport, the advantage of CLEAR is that it enables him to do research on both businesses and the individuals behind the business, and gives him a wide variety of investigative tools that allow him to dig much farther and deeper than any conventional search engine could. A sophisticated online solution is the only practical way to get such detailed records fast. CLEAR not only searches both the conventional and “deep” Web for data, it also scans proprietary databases that can’t be accessed using conventional search engines – e.g., utilities data, licensing information, property records, criminal histories — and organizes search results in a way that allows users to easily identify potentially important information. CLEAR can also be programmed to flag specific data and issue automatic alerts if fraud-related activity is suspected.
“I’d rather have more information than less, and CLEAR lets me look at anything I want,” says Rapaport. “I’ve had enough sleepless nights in this business. My appetite for risk is basically zero, so I do everything I can to avoid it.”
Factoring in the transportation business is inherently risky, however, because there’s no guarantee the debts OFS purchases will be paid back. Fraudsters can work any number of factoring scams, says Rapaport, from sophisticated money-laundering schemes that involve hiding assets in shell companies and offshore accounts, to lone operators down on their luck who try to pass off a fake invoice for some quick cash. These are just a few reasons why it is paramount due diligence is conducted to mitigate risk.
“It’s hard to tell how many people we’ve turned away who might have tried to defraud us, but using CLEAR I can look at the individual truckers, the principals, and individuals in those companies,” says Rapaport. “I’m looking for any kind of white-collar criminal history, a propensity for starting up businesses that go bankrupt, criminal charges, liens, judgments, lawsuits, things like that. I also look at how much equity they have in their trucks and their house, and whether they own their truck outright. That information is important to us.”
Investigative software that’s specifically designed to detect fraud is different from a typical Google search in that it sifts through both public and nonpublic data, including public court documents, property records, DMV records, social networks, blogs, news, and other data, looking for patterns that might indicate fraud. For Rapaport, the CLEAR risk indicator flags are particularly helpful, because they identify patterns he might otherwise miss, and they call attention to search areas he might want to investigate further.
“Those quick analysis flags are huge,” Rapaport says. “If I’m talking to a potential client on the phone, sometimes I’ll enter their phone number and see what comes up.” Using CLEAR, even partial information – such as a phone number, address, or Social Security Number – can yield an abundance of insight, because CLEAR automatically looks for related records and links dots that might otherwise take hours or days to connect. It also tracks connections between people – using business histories, real properties, vehicles, social media, etc. – which can be plotted on a three-dimensional graph for easy visual comparison.
Another CLEAR feature Rapaport relies on heavily is access to real-time data, particularly arrest records. “Other research platforms might have old information, or information that hasn’t been updated. But if someone just got charged with something, and I miss that, it could cost me.”
Fraud-protection software can’t always catch everything, but CLEAR catches more because it is connected to real-time court records, phone data, address information, and vehicle registration information, ensuring that every search is as accurate and up-to-date as possible. After a search is completed, the user can even request an alert if anything in a real-time database changes.
People who commit fraud are often desperate and looking for a quick fix to immediate problems, says Rapaport, so having the latest information at his fingertips is invaluable. “Fraud is our biggest competitor,” he says. “But we’re not going after huge multi nationals. We’re going after Joe Trucker, and our business is based on trust. Sometimes a divorce or other big life event will make people choose to do something they otherwise wouldn’t.”
Rapaport is sympathetic up to a point, that point being the moment someone decides to solve their problems by stealing from him. He turns away two or three applications a month based on the information he uncovers using CLEAR, he says. He also credits the software with saving the firm a great deal of money, both by preventing fraud in the first place and by making it easier to collect from businesses who are avoiding payment. Either way, CLEAR is the investigation-management software Rapaport relies on to clarify his hunches and check his gut: “If there’s one thing I’ve learned in this business, it’s that if something seems fishy, it usually pans out that it is.”
Because it’s so vital to his business, Rapaport wonders why more people don’t use investigations solutions like CLEAR. “I know people still Google, and maybe that’s all they know, but Google really just skims the surface.” By using CLEAR, Rapaport says he is following the advice of Frank “Catch Me If You Can” Abagnale, who spoke at the first factoring conference he ever attended. According to Rapaport, “Abagnale told us that in this day and age, it makes absolutely no sense to go into a business deal without knowing as much as you can.”
In the transportation factoring business, that means not only knowing about the businesses you are financing, but also knowing as much as possible about the people and businesses whose invoices you are purchasing, and from whom you must collect. When due diligence is your business’s only protection against fraud, CLEAR is the best insurance money can buy.
Thomson Reuters CLEAR® online investigation software provides a solution to your compliance and investigative needs. CLEAR aids organizations like yours in mitigating financial crime by providing consistent, comprehensive, and defensible investigative results.
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