Understanding Proof of Income

Proof of income is an important verification task within various financial and legal processes. By establishing a person or entity’s financial stability, decision-makers, such as landlords, credit issuers, or loan providers, can better assess the level of risk associated with an applicant and determine if they have the means to fulfill their financial obligations.

While most landlords, lenders, and financial professionals are very familiar with proof of income documentation, some may not be aware of how rampant document fraud has become. With the help of sophisticated editing software and the rise in digital fraud networks, it has become all too common for people and businesses to submit altered or false documents during the onboarding or loan underwriting process. In fact, financial services companies saw a 79% increase in document fraud in 2022, and document fraud has doubled in 2023. 

In today’s landscape, it remains more critical than ever for financial institutions, rental agencies, or any entity that is extending credit-based services to people or other businesses to carefully review and authenticate financial documents through a robust proof of income process.

What is Proof of Income? 

Proof of income is official documentation that verifies an individual or entity’s earnings and cashflow over a given period. With this information, a decision maker can assess the financial health of an applicant, determine if they meet any associated income requirements, and assess the level of risk associated with the decision.

 Though proof of income most commonly refers to a person’s earnings or salary, it also includes any other form of income, such as unemployment or disability payments, income from pensions or retirement accounts, court-ordered payments, or passive income from investments or property rentals.

There are many different documents that can be used to establish proof of income. Common forms of proof of income include:

• Pay stubs
• Bank statements
• Financial statements 
• Tax forms, such as a 1099 or W-2
• Documentation related to unemployment, disability or other government assistance program services
• Pension account statements
• Retirement account statements
• Receipts or transaction confirmations from passive income from investment accounts, rental properties, etc.
• Court-ordered payments
• Income verification letters
• New hire letters

Key Elements of a Proof of Income Document 

Given the rise in document fraud, it is wise for decision-makers to request multiple forms of documentation and cross-reference these materials to ensure consistency and accuracy. All materials should include information from the issuer, including the entity name, address, phone number, website, and email address.

In addition, reviewers should carefully inspect the date of these materials and ensure they are recent; this will help confirm an accurate representation of the applicant’s financial standing. It is important to note that some documents, such as tax forms and filings, correspond to the previous calendar year. As such, they may not always be reliable to establish a person’s current or projected income.

Finally, reviewers should carefully inspect all documents and look for noticeable signs of manipulation or forgery. Most cases of document fraud are impossible to spot with the naked eye, so relying on manual document reviews means fraud attempts go undetected. But with a document fraud detection solution like Inscribe, your team will know in seconds if a document is fraudulent. Inscribe assigns a Trust Score and provides a snapshot of any fraud found, helping you quickly understand the trustworthiness of any documents received (and your applicants).

The Importance of Verifying Income

 Proof of income is an important part of many financial and legal processes, including:

• Renting an apartment or home
• Applying for a loan, mortgage, or line of credit (including with a credit card company)
• Establishing eligibility for government assistance programs
• Processing visa and immigration applications
• Supporting court proceedings, such as determining payment levels for child support or alimony

In each of these cases, the decision maker will need to establish the individual’s current income level in order to take the corresponding action, such as creating a lease, onboarding a customer, providing financial assistance, approving a visa, or establishing the need for a court-ordered payment.

Traditional Methods of Income Verification

For many years, proof of income has been a largely manual process—meaning that a human will review the application and supporting documentation by hand. As part of this process, experienced reviewers would often also investigate the file’s metadata and use their knowledge and expertise to pinpoint any possible signs of fraud. This process is notoriously time-consuming, as well as potentially prone to error and bias.

Today, manual checks are considered largely obsolete as fraudsters have become more adept at forging or editing real documents, as well as using templates readily available via the internet to create convincing documentation. For lenders, rental agencies, mortgage companies, government agencies, and other sizable established organizations, manual document reviews are simply insufficient for stopping fraud.

The Rise of Fraud in Income Verification

With the help of technology, including document generation software and graphic design suites, even people with basic computer skills can produce high-quality documents that could potentially deceive reviewers into misinterpreting their actual income.

Unfortunately for organizations that conduct proof of income, fraud has not only become more common – it now comes in many different forms. Some fraud techniques associated with proof of income include but are not limited to:

• First-party fraud: When an applicant modifies financial details within their own original documents to meet the requirements of the service provider.
• Document modifications: When a person manipulates a real document, changing the identity details, financial transactions, or both, to suit their needs.
• Forgeries: When a fraudster uses software to create a net-new, fake document, often using a digital template.

AI-Powered Fraud Detection in Income Verification 

To combat the rise in document fraud, organizations that conduct proof of income should leverage AI-enabled review tools to more quickly and accurately identify fraudulent documents. These solutions use algorithms that analyze millions of data points to check every aspect of a submitted document, including the metadata, pixel-level information, and file history, comparing submitted files against known authentic statements to determine discrepancies invisible to the naked eye.

Advantages of utilizing AI-powered, automated document assessments include:

1. Swift efficiency: Our analysis indicates that a comprehensive manual examination of an individual document may consume 5-10 minutes, causing a deceleration in the decision-making process and elongating the coordination lifecycle with potential borrowers by several business days. By employing a document automation tool like Inscribe, you can obtain a thorough analysis of the file metadata, pixel-level information, and file history within a mere 10 seconds. This allows your human reviewers to significantly enhance their processing speed when handling applications.

1. Enhanced precision: Ninety percent of document fraud escapes the human eye, rendering alterations to identity or financial details virtually undetectable. However, Inscribe utilizes cutting-edge AI and machine learning technology to render invisible fraud signals visible. Our X-Ray feature presents both the uploaded and recovered versions of a document, enabling reviewers to discern precisely what changes have been made, including names, amounts, dates, balances, and other crucial details.

1. Mitigated bias: Automated review tools, such as Inscribe, function impartially, assessing documents based on face value and ensuring all applicants undergo review using identical criteria and standards. This aids in diminishing unintentional bias throughout the entire customer onboarding process.

1. Cumulative advantages: AI-powered tools possess the capacity to learn, evolving to become more precise and accurate over time as the model encounters an increasing number of examples. This evolutionary aspect of the technology is pivotal, especially since criminals consistently devise new methods to fabricate counterfeit documents."

Frequently Asked Questions on Proof of Income

What document proves income?

Applicants can use any number of documents to establish their income, including pay stubs, employment verification letters, and bank statements. Organizations that are conducting a proof of income should request several documents to establish proof of income and compare them to ensure the files are consistent, accurate, and recent. 

How do I provide proof of income if I'm self-employed?

Self-employed people commonly provide tax forms, such as forms 1099 or 1040, to establish their proof of income. However, these documents correspond to the previous year’s income and may not be useful to confirm the person’s current or projected income. Organizations can request additional documentation, such as bank statements, active contracts or purchase orders, financial statements, a P&L report, or invoices to help provide a more complete and current snapshot of their income.

Can digital statements be used as proof of income?

Absolutely. Digital statements can be used to establish proof of income. In fact, accepting digital documents often leads to faster review periods and onboarding processes, as well as higher customer satisfaction. And when using an automated review tool, it is also possible to more accurately detect signs of fraud that are often missed during manual reviews.

What is income fraud and how can it be detected?

Income fraud is when a person knowingly and purposely misstates their income to achieve a desired result. While most people tend to inflate their income in order to meet income requirements for housing agreements or to qualify for a loan or line of credit, some people may deflate their assets in order to obscure their true wealth or qualify for assistance programs. 

How can businesses protect themselves against income verification fraud?

The only way businesses can effectively protect themselves from income verification fraud is by relying on advanced, AI-enabled, automated document review tools to evaluate and authenticate all documents submitted by an applicant. 

What are the signs of fraudulent income documents?

The vast majority of document manipulations will be invisible to the human eye—especially as fraudsters rely on software and templates to expertly create and edit documents. This is why it is critical for organizations to incorporate an automated document review tool within their onboarding process to review and authenticate all documents.

Final Thoughts on Proof of Income

Proof of income serves as a crucial element in many financial and legal procedures, aiding decision-makers in evaluating the financial stability of individuals or entities. However, the prevalence of document fraud highlights the need for companies to enhance their verification processes. By leveraging automated document review tools during the onboarding and evaluation process, organizations can improve the speed and accuracy of their reviews—and help them catch fraudulent customers before it is too late. 

Ready to see what an automated document review tool can do for you? See how you can automate manual document reviews, improve fraud detection, and start approving more customers with confidence with Inscribe.Request a demo today to speak with a member of our team.