Warranty fraud on the rise in channel

Resellers are responsible for 87 per cent of abuses, according to survey findings

Vendors are losing 3 to 5 per cent of their revenues to warranty and support abuse in the channel, a study has suggested.

The Alliance for Grey Market and Counterfeit Abatement (AGMA) has teamed up with PwC LLP to issue a white paper on the subject, which it warned is a “relatively unknown and growing problem”.

Warranty and service abuse refers to the use of services or warranties to which the customer or recipient is entitled. In 87 per cent of cases it is perpetrated by partners or resellers, according to the study.

Prevalent forms of warranty and service abuse include exploitation of advance replacement programmes, service over-usage and non-existent service charges, AGMA said.

AGMA’s members include HP, Cisco and Nortel, and participants in the study alone were found to be losing $10bn (£6bn) annually from this type of fraud. That equates to between 3 and 5 per cent of participants’ revenues.

AGMA claimed these amounts could be slashed with appropriate vigilance and controls.

AGMA president Ram Manchi, said: "It is clear that the threat of warranty and service abuse has been flying under the radar for many in the IT industry.

“It is our hope that by publishing this study, we can inform companies about the magnitude of the service abuse problem, help to start them on a path towards preventing this fraud, and potentially stop them from experiencing the 3 to 5 per cent loss in revenue that the study results have confirmed.”