Fraud Prevention through Open Communication

by Toby Dahm

As a 25-year-veteran in the commercial finance business, I have been well advised to be vigilant about fraud. I have financed some bad apples. Some were rotten to the core; others became overripe due to circumstances. Only two of these instances involved people that were intent on cheating us from the start. Far outnumbering these are cases in which circumstances put people under heavy pressure, and they responded by resorting to various methods of inflating their reported collateral and profits.

fraudI believe that fraud is the greatest risk we face in commercial finance, and identifying lender risks is of the upmost importance. A review of industry training programs tells me that many people share this view. Many of the programs, whether introductory or advanced, place great emphasis on the prevention, detection, and response to fraud. Much of the material, and the discussion that it provokes, sets the stage for an “us” vs. “them” atmosphere. I have often heard it stated that there is always a customer looking to con us. 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 as well as sensitivity to our clients’ interests. A driving factor in this is competition. This industry has, and always will be intensely competitive. It might be argued that this is the most competitive environment we’ve seen. This requires us each to operate as efficiently as possible, which often means stretching our staff to its capacity. The result is that the people in direct contact with our clients are handling more clients than ever. This makes it hard to stay as close to our clients as we should.

Familiarity normally builds trust, and the opposite is true when we don’t invest the time to stay close to our clients. 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 the client has under control and do not present a threat to our money.

A 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 ensure that our clients are coming into a company culture where they will be receiving open and honest communication, language and tone is spoken efficiently to them, and there is two-way trust built from the beginning. 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. This is a huge key to fraud prevention.

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.


About the Author


Toby Dahm serves as Senior Vice President and ABL Portfolio Manager for Hitachi Business Finance. In this role, he assists in business development and is responsible for underwriting and managing of all asset-based loans.

Toby has more than 25 years of experience in commercial lending. He is active in the Association for Commercial Growth, the Commercial Finance Association, and serves as an Advisory Board Member for The Salvation Army.

Contact Toby today at or (248) 658-3208.

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