Apple Reportedly Addressing Fraud by Third-Party Service Centers

In a pair of articles published over the past week, Hardmac reveals that Apple has been working to fight against fraud perpetrated against the company by third-party authorized service centers. According to the initial report published last week, the fraud was conducted by repair centers both charging customers for out-of-warranty repairs and also reporting to Apple that the machines were under warranty, thus receiving free parts as well as remuneration from Apple for conducting the repairs.

Thus, certain After-Sales Service Centres could pass under guarantee of repairs, machine that were not covered, and also invoiced these repairs to the customer thus ensuring a healthy profit to them.

In yesterday's follow-up article, Hardmac provides a bit more detail on how this was accomplished, using a process known as "stitching" in which vendors utilized the serial numbers of computers under warranty held on file at the repair facility when reporting issues to Apple rather than the actual serial numbers of non-covered equipment brought in for service.

Stitching is the process by which an Apple Service Provider (ASP) technically defrauds Apple. This happens by a customer coming in for an out-of-warranty repair (as an example lets use a macbook top case). The customer's macbook top case is no longer working and they are happy to pay to get it fixed. Instead of the ASP ordering the part from apple as out-of-warranty and making around 15% gross profit margin, the ASP would find a serial number in their database of previous repairs (of an identical model) and order the part as a warranty part from a serial number they have found. This technically allows the ASP to pay nothing for the part, but then make 100% margin.

Apple reportedly discovered the fraud only after several years of experience with its own Genius Bar repair channel, where significantly lower proportions of warranty repairs were seen. Upon conducting audits of its American and then global authorized service centers, the company apparently found a number of cases of significant fraud perpetrated using this method.

According to the report, at least one large service center in the United Kingdom has been entirely closed down in the wake of Apple's fraud investigation, with several others in the "Far East" also possibly meeting the same fate.

In order to address the fraud, Apple has reportedly rolled out enhanced tracking of part numbers in its repair ordering system and deployed software to assist the company in making sure that the proper parts are being installed in the proper computers.

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