Are you doing all you can to protect against fraud?

The last Utility Information Pipeline dealt with your Red Flags Rule policy and if it is up-to-date. Today, we’ll take a look at applying the Red Flags Rules at various phases of the account lifecycle.

The graphic below is from LexisNexis and identifies key areas in the life of a utility account where potential identity theft and fraud, two key areas addressed by the Red Flags Rule, can occur. If you’re not familiar with LexisNexis, many utilities use their services to research and validate social security numbers. Your utility may already use their services if you operate in a state with a debt set-off program and need to locate social security numbers for bad debt accounts.

For most utilities, the infographic below is primarily relevant for the Account Opening process, but can also apply to Account Management and Account Collections:


Account opening

When a new customer applies for service, you should insure the applicant is who he or she claims to be. The two best ways to do this are to require photo ID and proof of residency (lease agreement or closing documents) for the address for which they are applying for service.

You should also perform a bad debt search using relevant identifying information (name, driver’s license number, social security number and date of birth) to see if the applicant is a previous customer with possible unpaid bills.

Finally, if you base your security deposit on the applicant’s credit rating, insuring the applicant is who they claim to be is vitally important.

Account management

Insuring the person you are talking with is indeed the account holder is important before divulging any financial information for an account. If the customer is in your office, their identity can easily be verified by comparing their face or current photo ID to the photo ID on file.

Customers on the phone aren’t as easily verified, so many utilities require the caller to provide either the last four numbers of their social security number or answer a security question.

If a customer who previously had no history of delinquencies suddenly appears on your cut-off list, do you have a policy in place to insure they have an adequate security deposit?

Account collections

The key to collecting final bills is to be diligent and have an aggressive program in place to follow up with unpaid final bills. Waiting until the end of your fiscal year, just before writing off bad debt accounts, is too late to follow up. You should actively pursue unpaid final bills after each billing.

Is it time to reexamine your processes?

If you aren’t doing all you can to protect against identity theft and fraud or to collect bad debt accounts, please give me a call at 919-232-2320 or e-mail me at to learn how a business review could help you evaluate how to improve your effectiveness.

Click here to subscribe to my free, bi-weekly e-mail newsletter...

© 2016 Gary Sanders

Is your Red Flags Rule policy up-to-date?

You remember the Red Flags Rule, don’t you? For many people, it is best remembered because of multiple deadline extensions before it finally went into effect.

The Red Flags Rule originated with the Fair and Accurate Credit Transactions Act (FACTA) of 2003. It had an original effective date of November 1, 2008 and implementation was delayed three times, finally taking effect on January 1, 2011.

Red Flags Rule Flowchart

The Red Flags Rule is designed to help prevent identity theft. There are four elements to a Red Flags Rule policy:

  • Identify relevant red flags
  • Detect red flags
  • Prevent and mitigate identity theft
  • Update the program

Let’s examine each of these elements in more detail…

Identify relevant red flags

In this phase of your Red Flags Rule policy, you should determine what types of suspicious activity might be relevant to your particular utility. For example, do you require photo ID and proof of residency when establishing a new account? If so, relevant red flags could be what appears to be an altered ID or the name on a lease agreement not matching the name of the applicant for service.

Detect red flags

Detection of red flags requires your customer service representatives to be vigilant when taking an application for service from a new customer. In this phase, your staff should be actively reviewing the possible red flags identified in the previous section each time they interact with a customer.

Prevent and mitigate identity theft

This phase of your policy documents what action to take when a red flag is detected. Depending on the severity of the red flag that was detected, the mitigation could range from contacting law enforcement to denying service to taking no action.

Update the program

The final phase of a Red Flags Rule policy is the requirement to update the policy as needed. Changes in technology and new schemes from identity thieves are two reasons you would want to update your policy.

Approval and training

Your Red Flags Rule policy must be approved by your board or governing body, or a committee appointed by your board. Each new hire should receive training about your Red Flags Rule policy as part of their initial orientation. It’s also not a bad idea to conduct periodic refresher reviews of the policy with current staff members.

Does your Red Flags Rule policy need updating?

If your Red Flags Rule policy hasn’t been reviewed since it went into effect or if you don’t have one, please give me a call at 919-232-2320 or email me at to learn how a business review could help you update your policy.

Click here to subscribe to my free, bi-weekly e-mail newsletter...

© 2016 Gary Sanders