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Originations Audit Specialist

The Hankey Group Las Vegas Full-Time
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Overview:

Western Funding (WFI) is in the business of partnering with Dealers to enable them to originate sub-prime auto loans using WFI’s Triple Pay program.  Dealers follow a signup process to become eligible to use WFI’s program and a Master Dealer Servicing Agreement (MDSA) is signed governing the terms of how a dealer and WFI work together.

Given its business model, WFI bears risk from both the dealers and from the deals and therefore should have internal structures designed to address and mitigate these risks to ensure that it is not taking on undue risks.  In both cases, Fraud is the primary risk to WFI. 

The word “Fraud” is a very sensitive topic.  Too often, this word is used loosely.  We believe it is important to define it clearly here so that all readers of this document understand precisely what it means in the context of an audit process.

Fraud

  • Confirmed misrepresentations by a dealer
    • about their business history, legal standing, or ownership structure
    • regarding the facts of any deal submitted for funding consideration
  • Confirmed altered documents presented as “proofs” in support of any deal submitted for funding consideration, whether provided by the dealer or the customer

Dealer Risk

  • Initial – it is important for us to know that a dealer is a legitimate business with inventory and active sales operations, operating within the laws of their stated jurisdiction, with ownership who is properly captured and documented under the MDSA. The risk potential here is that we sign up a dealer who does not meet these criteria and receive and fund loans which are not enforceable because they are fraudulently originated.  These risks are assessed during the Dealer Sign Up process which is administered by the Dealer Compliance team at the time of signup. 
  • Ongoing – an otherwise legitimate dealer who is using WFI’s program could impart systemic portfolio risk by initiating or enabling fraudulent representations of key facts used to assess the repayment risk of each deal (Customer Identity and Credit, Income/Employment, Residence, Down Payment). This can happen on individual deals (smaller risk) or on all deals (larger risk) and can be perpetrated by dealer employees, by the customers, or a combination of the two.

Deal Risk

  • WFI enables dealers to access its scorecard via DealerCenter or DealerTrack to generate advance offers on potential submissions. The creation of an advance offer requires the entry by the dealer of information about the customer, the vehicle and the proposed deal structure. 
  • The WFI Funding Department is the first line of defense in ensuring that the “facts” of deal are correctly reflected and thus the score, which drives the advance amount, is correct. In addition, there are program parameters that can’t be administered by the score but which are administered via the application of policies.  The policies are generally determinative of whether a deal can be approved or declined or whether a dealer can receive credit for an input that drives a score variable.  The combination of the scorecard (computer enforced) and the policies (team member enforced) are critical to controlling WFI’s originations risk.  Deals that deviate from WFI’s prescribed score or policy guidelines are deemed non-compliant.
  • Deals that are non-compliant are likely to perform worse than expected with respect to WFI’s profitability targets and additionally, can create challenges in evolving its scorecard by masking the impact of key variables that WFI deems to be predictive of repayment performance.

While both dealer and deal risk are assessed and monitored by existing operational teams within WFI, the nature of their work is transactional and impacted by expectations of a service level.  Therefore, WFI is creating a new audit role to serve as an additional level of protection by independently assessing dealer and deal risk, without being impacted by service level expectations, under joint Risk and Management guidance, as described below:

PHASE I – Implemented January 1, 2019

Role Name:

Originations Audit Specialist

Organizational Reporting Structure:

This role will report directly to Amber Hahn, VP of Originations

Role Scope:

This role will be responsible for conducting dealer audits on dealers which are flagged based on the triggers outlined below and deal audits based on a specified percentage of funded deals each month.  The target allocation of effort by the auditor will be to conduct dealer audits [50%] of their time and deal audits [50%] of their time each month.  Audit results will be reported on at least a monthly basis, ideally with weekly updates to the auditor’s direct manager, the Director of Risk, and the President.

Dealer Audits:

Audit Triggers:

Upon the occurrence of any of the following triggers, auditor/audit team will audit the last [5] of the dealer’s deals:

  1. Dealer’s 5th deal
  2. Performance decline [need to define parameters]
  3. Dealer qualifies for EDC
  4. Funding team identifies potential fraud
  5. Originations Audit Specialist identifies potential fraud during Deal Audits
  6. Management discretion

Audit Process:

  1. Identify dealer’s most recent [5] deals
  2. Print out all relevant deal docs
  3. Review Legal Compliance
    1. Contract
    2. Supporting Legal Docs
    3. Identification (SSN)
  4. Review Funding Policy Items for Fraud
    1. Credit Bureau
    2. Income/Employment
    3. Residence
    4. GPS
    5. Down Payment

Audit Results:

  • Results will be reported out in an agreed upon format and will include recommendations based on the audit findings.
  • Negative Findings
    • Definition – [Fraud] identified on [2] or more of the deals in the audit sample
    • Actions Against Dealer
      • Buyback deals where [Fraud] identified
      • OR
      • Sanction Applied
        • [$100] per deal fee applied on next [50] deals
      • EDC and/or Holdback payments suspended during sanction period
      • Potential termination of MDSA depending on severity

Deal Audits (Compliance): 

Audit Triggers:

Prior day funded deals

Audit Process:

  1. Identify a sample of deals which covers [XX%] of all funded deals and covers all credit analysts
  2. Review Legal Compliance
    1. Contract
    2. Supporting Legal Docs
    3. Identification (SSN)
  3. Review Funding Policy Compliance
    1. Credit Bureau
    2. Income
    3. Residence
    4. GPS

Audit Results:

  • Measurement basis is number of compliant findings as a % of the total opportunities per deal. For example, if there are 20 compliance checks, and the auditor finds 2 non-compliant errors, the compliance calculation will be (20-2)/20 = 90%.
  • Initial measurement may be done on a team basis
  • Ultimate goal is to measure on an individual credit analyst basis
  • Audit results will be shared with the Funding Team and Management
  • Audit results will be considered in the Credit Analyst’s variable pay plans

PHASE II – Target Implementation 2H19

Deal Audits (Tombstones):

Audit Triggers:

All deals that “failed” within the following parameters:

  • All Recourse Buybacks
  • Charged Off within [6] months of origination

Audit Process:

  1. Risk team to provide the list of deals that meet the above criteria
  2. Review Legal Compliance
    1. Contract
    2. Supporting Legal Docs
    3. Identification (SSN)
  3. Review Funding Policy Compliance
    1. Credit Bureau
    2. Income
    3. Residence
    4. GPS
  4. Review Servicing Early Actions
    1. Customer engaged?
    2. # Payments Made
    3. End result (Repo/CO/BK, etc)

Audit Results:

  • Review results with Risk, Originations Leaders, President monthly
  • Did Funding team do everything correctly in originating deal?
  • What lessons can we incorporate into the Risk/Originations process?

 

Recommended skills

Auditing
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