Service & Warranty Abuse
Developing Best Practices to Help Reduce Warranty Fraud
Service and warranty abuse is defined as the use of services and support without proper entitlement or authorization-including actual equipment replacement, technical support and/or software without proper warranty or entitlement contract - generally with the intent to benefit from defrauding the provider. In other words, service abuse is service usage by a party that is not entitled to receive the service.
Warranty and service abuse is a multibillion dollar threat to technology industry and can cause a three to five percent loss in revenue (PwC/AGMA).
Service abuse refers to exploitation of services to obtain replacement products to which the recipient is not entitled or not covered for, or other support benefits received. For example, acquiring service contracts for some products, and using that service contract to request and receive service on a product that is not covered by the contract would constitute service abuse.
The abuse can be simple (for example, a customer demanding warranty service on an expired service plan) or very complex. Collectively, service abuse costs North American businesses billions of dollars each year, according to the information gathered by PricewaterhouseCoopers (PwC) in the course of a recent study.
Large scale fraud schemes are usually linked to criminals, however, even some legitimate businesses and individuals may try to trim their costs by claiming support they are not entitled to. The effects of such abuse have grown in importance over the last few years, and this is a trend that is expected to continue.
The consequences of service abuse include decline in customer confidence and company reputation, increased service costs, loss of service revenue, increased gray market activity, loss of new product sales and increased R&D costs. The real impact or cost of service abuse is difficult to quantify, and the absence of real efforts to mitigate the threat appears to encourage more audacious fraud schemes. Moreover, impacts to brand reputation, customer service, intellectual property, and other less tangible or quantifiable business assets further complicate total loss estimates.
The following practices were used in most fraud cases :
• False or invalid warranty claims for the purpose of obtaining products for subsequent resale on the gray or open market.
• False payments or credits claims for services not performed.
• Use of false customer names, addresses, or account information.
• Customer information falsely completed on behalf of nonexistent customers.
AGMA recommends that companies deploy internal controls and other detection mechanisms to prevent and detect service abuse.