So, what do we mean by staged income, or even inflated income, and are these both types of fraud?
Staged income is the process of falsely presenting a job that doesn’t exist. This could be by creating fake payslips to make it look like someone has a job that doesn’t exist or amending bank statements to show money crediting an account that never did.
We also see companies that are complicit in this type of fraud by providing payslips for individuals that don’t actually work for them. This is common with family businesses.
These jobs will be recent and will usually have started between one to six months before they approach a broker. So, it is best practice to conduct additional due diligence on the following:
- Recent employment
- Second jobs
- Family businesses
So, how do we combat this?
There are many checks we can do to help identify staged income, such as:
- Ensure the fact-find has a full 12 months employment history.
- Ask for additional payslips and bank statements.
- Request HMRC Taxable income statement.
- Request employment contracts.
Other checks will include reviewing the location of the company and seeing if this makes sense for where your customer lives, to actually work there?
We have seen cases where people have a job, but it is 70 miles from where they live. This may make sense for someone on a high income as they will be more willing to travel for their job; however, this wouldn’t make sense for a shop worker on £25,000.
We have also seen cases where customers have two jobs. However, on closer inspection, it turned out they were both full-time and would require the customer to be in two places at the same time. Which isn’t possible.
Also, how do they get paid? Is this via a direct transfer into their bank account or do they get paid in cash? Most people are paid via transfers such as BACs payments or Faster payments, and in these situations regular cash payments will appear suspicious and should be investigated further.
But for certain jobs, such as shop owners or market traders, cash deposits into their bank accounts will make sense.
However, you can only know if the salary makes sense if you really know your customer.
Collecting documents and asking questions to fully verify the identity of your customers is called ‘Know Your Customer’ or KYC and is one of the best ways to reduce financial crime. For each case, you should be 100% comfortable that you know who your customer is and the information they have given you is correct.
So, what is inflated income?
Inflated income is where the employment is real, but the salary has been increased or ‘inflated’ to help obtain a mortgage that otherwise would not be affordable.
In these situations, all the documents will be genuine and will show the required income and will therefore look perfectly fine.
However, once the mortgage has completed, the salary will be reduced back to its original level. This is still fraud.
So how do we prevent this?
Whilst all of the documents we could request will show the required income, brokers can still conduct checks that will help reduce the potential of this type of fraud, this is where KYC or Know Your Customer is essential:
- Does their income level match that expected of that type of role or the size of the company?
- What is the turnover of the business? Could they sustain that level of salary?
- Is the income being spent each month or is it being left in the account?
Quite often with this type of fraud, the individual will have to pay back that money; therefore, it may remain untouched in their account. But think, how often do you see a salary go into a bank account and not get spent?
Lenders conduct further reviews after cases are completed, and if they see evidence that the salary was not genuine and has been reduced to a lower amount, they will flag this as a risk case against the broker and we have seen many examples of this.
As always, if you would like assistance or a second opinion on a case you are unsure of, please contact the Compliance team who will be happy to help.
Regards
Alan Baldwin
Director of Compliance
Ror any questions or queries, contact the Compliance Team
Call : 01708 676110
Email : compliance@connectmortgages.