Fraud Prevention through Open Communication

Today we’re sharing a blog post on fraud from the lender’s perspective, written by Toby Dahm from Hitachi Business Finance. We’ve written extensively on fraud in recent years, and even put together an in-depth workshop for CEO’s on understanding and preventing fraud (visit for more information on this and other workshops). Our fraud discussions usually focus on embezzlement because we’ve seen so much of it, and how devastating it is to the business owner. But another type of fraud that business owners sometimes rationalize is related to their lending relationship. This can take many forms, but the end result is the same: Submitting misleading or inaccurate financial information in order to obtain (or maintain) financing. Today we’ll get the lender’s perspective on managing this risk.

Fraud Prevention through Open Communication

By: Toby Dahm, Senior Vice President at Hitachi Business Finance, a division of Hitachi Capital America Corp.

As a 30 year veteran in the commercial finance business, I‘ve been a victim of fraud numerous times. Some of the perpetrators were intent on cheating from the start. In most cases, however, circumstances put people under heavy pressure and, in desperation, they resorted to fraud.

I believe that fraud is the greatest risk we face in commercial finance. A review of industry training programs tells me that many people share this view. These programs emphasize the prevention, detection, and response to fraud. Real examples are used to bring theory to life and to add a criminal dynamic that stirs emotions. These horror stories, combined with the exhaustive list of scams that are highlighted, leave trainees very guarded.

This sensitivity can lead to a distrustful mindset. We think “who’s trying to steal from me today”? It’s like Jurassic Park, where the T-Rex is constantly testing the electric wall for a weakness it can exploit. While it may be alright to speak and think this way among ourselves, it’s very difficult to keep this attitude from damaging our relationship with our clients.

It’s a tough balancing act to maintain sensitivity to potential fraud and sensitivity to our clients’ perception of us as a business partner. Earning a positive perception requires an investment of time. We must establish a rapport with the people we interact with, and we must show that we understand their business and want them to succeed. This understanding and intention must be real, and requires us to take the time to listen and learn.

Familiarity normally builds trust, but the opposite is true when we don’t show our support. We lose their trust. When we aren’t on top of client developments our training can lead us to identify and respond to hypothetical horribles (fraud). Sometimes we are right, but often, adverse trends are a result of foreseeable and temporary events that don’t jeopardize our loan.

Our company culture is at the heart of this. We cannot let the “who’s going to steal from me today” attitude seep into our culture. Once it does, it’s impossible to keep it to ourselves. Our clients will feel distrusted, and in turn they will distrust us. Once communication becomes guarded and strained, we are headed down a very bad path.

We must insure that our clients come into a company where they receive open and honest communication, we speak in simple terms without using jargon. We work to earn their trust. If they are encouraged to be open with their problems, and believe that we will do our best to understand them and seek a good outcome, they will be more proactive in communicating with us, and we will know what’s happening before we see a trend that would otherwise make us suspicious.

Often, whether or not we are victimized by fraud is a self-fulfilling prophesy. If we believe we’re going to be cheated, we are likely to develop a low trust relationship, which encourages concealment of problems or worse. On the flip side, if we create an environment that is high on trust, we encourage our clients to be transparent and honest.


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Todd Rammler

Todd Rammler is the President and founder of Michigan CFO Associates.  Todd is a Certified Management Accountant (CMA), and holds an MS in Accounting from Walsh College (cum laude), and a BBA in Finance from Western Michigan University.

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