Every fleet manager knows that fraud can bleed resources and undermine operations, yet not all are familiar with the insidious nature of ‘friendly fraud.’ This subtler form of deceit, often overlooked, can be particularly pervasive in fleet transactions, especially when it comes to fuel purchases. As fleet management becomes increasingly sophisticated, the need for equally advanced solutions to combat these fraudulent activities has never been more critical.
What is friendly fraud, and why is it important to distinguish it from true fraud?
Arising from authorized users, friendly fraud typically does not involve stolen information. This may look like an employee claiming that their fleet card doesn’t work at the pump, so they go inside the store to pay for gas and purchase additional, unauthorized items. It can also look like the employee using the card for un-approved company activity, such as purchasing fuel for their own personal vehicle. In contrast, for true fraud, the agent is an outside un-authorized user, and the mechanism for it typically involves compromising or taking over an account. Imagine fraudsters using skimmers, electronic devices that attach to credit card readers, to steal the cardholder's credentials.
Distinguishing between friendly fraud and true fraud is essential for tailoring mitigation strategies, applying appropriate legal and disciplinary actions, and identifying system deficiencies. Proper identification also helps maintain employee morale and trust, allowing good actors to perform their job with ease while ensuring accurate financial recovery.
What are the red flags of friendly fraud?
Detecting friendly fraud has traditionally required constant vigilance for signs like unusual increases in fuel consumption or inconsistencies between reported locations and actual fueling sites. This may look like an employee deviating from their standard route to visit personal destinations, or refueling at locations that are notably out of the way.
Traditional monitoring methods often fail to comprehensively prevent fraud. Many in the industry assume that fraudulent drivers are skimming fuel in large quantities, which is easier to catch through monitoring cost per miles or checking fuel sensor data. However, Car IQ has observed that the majority of the fraud comes from more minor, but frequent, fuel skimming. These traditional methods often fall short when it comes to detecting a few gallons of skimmed fuel here and there, making continuous vehicle authentication and data monitoring essential for effective fraud mitigation and detection. Moreover, those using fleet cards tend to especially struggle since it can be challenging to connect a card to a driver, vehicle, or transaction in real-time. Here, the importance of connected real-time data, such as location, odometer readings, and fuel levels, becomes apparent, offering a clearer picture of each vehicle's activities.
How can fleet managers mitigate friendly fraud?
By using telematics from the start to the end of each transaction, fleet managers can ensure that only legitimate transactions are processed. Here's how this approach works:
- Continuous Authentication: When a unique vehicle identity is known, telematics can be used to continuously authenticate through real-time data, including location, odometer, and fuel levels, building a comprehensive profile for each vehicle.
- Proximity and Fuel Level Checks: Before a transaction, it is ideal to check whether the vehicle is indeed where it claims to be, using a 'proximity score' derived from data streams.
- Post-Transaction Validation: After fueling, the system compares the fuel level increase with the transaction details. Discrepancies, such as a significant fuel level mismatch, trigger alerts for potential fraud.
Some solutions have features that can mitigate or even stop fraud directly in its tracks. For example, Car IQ has a feature that evaluates the fuel needed based on the tank's capacity and existing fuel levels, using local fuel prices to set a cap on the transaction amount. It also has another feature, Dynamic PreAuth, that can shut off a pump at this predefined, capped transaction amount, based on the exact amount of fuel that vehicle needs. For example, if a vehicle only needs 5 gallons of fuel, Car IQ would stop the transaction at 5 gallons. Although a fraudulent driver could dispense that fuel into a Jerry Can or in another car, Car IQ is able to detect whether that 5 gallons (or even part of it) doesn’t go inside the transacting vehicle, and then flag that transaction as potential fraud.
How can fleet managers detect friendly fraud?
Most fleet managers understand that a single incident of suspicious activity does not necessarily equate to fraud. However, repeated patterns and anomalies can reveal underlying issues that require attention. To effectively combat potential fraud and inefficiencies, fleet managers must leverage data to surface actionable insights.
Car IQ’s approach to detecting friendly fraud distinctly contrasts with common industry practices. Unlike the traditional approach of monitoring cost per mile per vehicle, which can only catch fraud on a large scale, Car IQ employs an innovative approach that uses real-time fuel sensor data. Our sophisticated algorithms then clean and augment this raw data, catching even small mismatches in vehicle fuel intake versus fuel purchased. By leveraging our unique capabilities, Car IQ provides fleet managers with highly reliable and precise fraud detection.
Fuel Your Fleet with Car IQ Pay
With Car IQ Pay, you can manage your fleet in ways you never dreamed of. Forget about physical credit cards and random, unapproved charges—our cutting-edge digital vehicle payment platform lets vehicles pay seamlessly, and consolidates both vehicle and transaction data into a single ledger. This not only provides you with an incredibly detailed view of your fleet's operations but also an incredible level of efficiency and control.
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