You are reading: How Screening Tools Fail to Catch Fraud
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As a property manager, you are probably aware that there’s a growing number of attempts by prospective tenants to apply for leases using fake information. Many of these scams are designed to convince you to skip doing a thorough background check. And often, it’s because the applicant is hiding something.
Over 60% of apartment rental candidates have submitted fake pay stubs during the income verification process. Failure to identify this fraud can contribute to one reason why many landlords report a higher number of payments with insufficient funds when rent is due.
This trend proves that tools designed to thwart fraudulent applications and payment returns are more critical than ever to keep rental operations running efficiently and seamlessly.
This blog focuses on the fact that as fraud attempts increase, so do the technology solutions available to help ease property management and rental property challenges.
Pay Attention to Red Flags
There are a few red flags that may alert you to an applicant who is trying to scam you. For instance, it’s all too easy for prospects to make subtle changes online to bank statements, pay stubs, and tax forms, leaving some property managers stressing about how to control the problem.
These altered documents are practically invisible to the naked eye. A scammer can make a simple tweak in a code or photo editing program, and suddenly, their annual salary goes from $40,000 to $140,000. The result: being forced to manage a potentially high-risk tenant in your property.
According to recent data, one in eight rental (12%) applications contains some fraud. An estimated 85% of property managers report they have experienced application fraud, accounting for approximately 25% of evictions.
This is to no fault of the property manager. There are thousands of ways to create fake documents, most of which are nearly impossible to detect via the human eye. The good news is there’s technology available on the market that property managers can utilize to prevent fraudulent rental applications from slipping through the cracks.
Different Screening Techniques & Their Effectiveness
Investing in software to detect fraud is critical for any landlord or property manager who deals with lease agreements. However, what type of screening tool is right for your business?
Let’s start by looking at the differences between screening and fraud detection tools. Yardi and Appfolio, for example, can screen tenants, but they don’t detect fraud.
In a nutshell, tenant screening helps landlords and property managers gather vital information about potential tenants ahead of signing on the dotted line. It involves gathering information and conducting various checks to determine an applicant’s suitability. A good screening process should involve a range of reports, such as background checks, credit checks, employment verification, rental history verification, and references.
With a screening tool, the goal is to get the big picture of the applicant’s background, financial stability, rental track record, and general reliability.
Fraud detection software is designed to spot fake documents before they even get through the screening process. These tools help save time, money, and future headaches.
So, do businesses really need both? And do fraud screening tools work?
While general background screening tools uncover crucial data related to criminal background and credit checks, ID verification, and more, fraud detection completes the renter screening loop by scrutinizing the legitimacy of all financial documents. In fact, some of the best software solutions can analyze signatures, verify identity, and check for any digital alterations.
At Snappt, for example, we use a predictive model powered by our proprietary AI technology to scan for over 10,000 anomalies on a document to determine if it’s been manipulated. This comprehensive scan is the most accurate in the field and has the highest chance of detecting document manipulation. Our fraud detection technology has required years of training to achieve industry-leading 99.8% accuracy.
So, instead of spending up to 10 hours vetting an application, you can spend mere minutes uploading digital documentation for image and historical analysis as well as a data-driven review using algorithms developed to catch document manipulation. Within 24 hours, certification is delivered to the user, stating whether the documentation is fraudulent or authentic.
What about credit scores, ID verification, and bank linking? Can’t they stop fraud without having to invest in fraud detection software?
Many property management companies agree that they aren’t enough. ID verification, for example, is ideal to ensure a potential applicant is who they say they are, but that doesn’t mean they are being honest. ID verification is wise to use along with document fraud detection, but not as a substitute.
Bank account linking technologies – think Plaid or Finicity – are even more useless in detecting fraud. Why? A landlord can’t require individuals to use them legally. For this reason, they only have around 38% utilization. All a prospective renter must do is click “no” twice, and they have opted out of using bank linking. And since someone intending fraud via misrepresenting their financial situation would never proactively opt-in to such technologies, this strategy catches zero percent of those intending fraud.
Some landlords consider using OCR (Optical Character Recognition), but it doesn’t cover all the bases. This tool can never fully and accurately detect a significant amount of fraud. By simply using a web browser, a user can HTML edit what their bank account says it has in it. They can take a screenshot of that or print it to a PDF and successfully create a pixel-perfect, undetectable copy that’s impossible for OCR to detect.
How to Ensure You Choose the Right Screening Tool for Your Business
While it’s crucial to leverage general property management software to run a successful apartment rental company, it’s also equally important to implement fraud detection to protect your properties.
Some software tools available on the market today offer integrations with fraud detection companies (ResMan just launched theirs with Snappt), or you may have to research and select what’s best for your business needs.
Key features to look for should include:
· Algorithm age
· Number of total documents scanned
· SOC2 compliance
· Customer support
· Integration with other software
· AI-based tools
The risk landscape will only widen and become more complex for property management companies and landlords looking ahead. And because most rental companies aren’t experts in fraud detection and prevention, it’s essential to enlist the support of the right tools and partners that can help navigate the pervasive, threatening world of rental fraudsters.