The Fraud Examiner

'Tis the Season - For Fraud

By Laura Telford 


The holiday season is just getting underway -- and with it come many opportunities for fraud. Here are some of the most common schemes targeting consumers and retailers, and some tips to avoid getting hit.

Gift Card Stripping
One of the hottest targets of retail fraud is gift cards. Gift cards are attractive to fraudsters because they contain no customer information. Really, they’re just like cash. One of the most common gift card scams is when a fraudster takes a pile of gift cards off a rack or shelf in a store, sneaks off to an out-of-the-way spot, and then uses a scanning device to capture the identifying information contained on gift cards -- all without ever leaving the store.


After capturing the digital information from the cards, the fraudster leaves and, either by using a computer or calling the phone number on the back of the cards, he checks the status of the cards until they have been purchased and activated by a customer. Then he intercepts and uses the card number for online purchases before the customer even has a chance to spend the money. Holiday gift cards are usually purchased well in advance of the holiday and given as a gift, which provides the fraudster with plenty of time to use the funds before the unaware recipient tries to use the card himself and discovers it has a zero balance.


Tip: To minimize your chances of inadvertently purchasing a scanned gift card, ask store employees if you can purchase a card that has not been out on the sales floor. Often, stores keep a back stock of gift cards behind the customer service desk or in a storage room, where fraudsters probably haven’t been able to access them. Also, check the back of the card before purchase: if the identifying numbers or codes are easily seen without removing the card, put it back. If you can see the code, anyone can. And a quick check for signs of tampering can go a long way in making sure your gift gets into the right hands.

Debit Card Skimming
Similar to gift card stripping, debit cards can be stripped by a fraudster using a special scanner that collects the digital information from the card. The owner of the card has no idea that their information has been compromised. Often, debit card scanners are installed on ATMs and are virtually undetectable. A camera or magnetic device set up nearby captures the PIN entered by the victim. The PIN and the card number collected from the scanner give the fraudster all the information he needs. The victim is unaware his information has been compromised until he notices strange purchases made on his account.


Tip: Steer clear of non-bank ATMs and always check your statements to make sure there are no unauthorized charges.


Return Fraud
Stores often relax their return policies after the holiday season, in part to keep up with the increase in post-holiday returns. In addition, temporary holiday staff may not be properly trained in how to detect fraudulent returns. The most common types of return fraud involve returning:


  •  Stolen merchandise
     Fraudulently purchased merchandise
     Used merchandise
     Merchandise using forged receipts  
  • But employees may also be in on the scam. In a fictitious refund scheme, an employee processes a transaction as if a customer were returning merchandise, even though there is no actual return. Two things result from this fraudulent transaction. The first is that the employee takes cash from the register in the amount of the false return. For instance, if the employee processes a fictitious return for a $100 pair of shoes, he removes $100 from the register. The register tape will indicate that the shoes were returned, so the disbursement appears to be legitimate. The register tape balances with the amount of cash on hand because the fraudulent refund accounts for the cash that the employee stole.
  • The second thing that happens in a fictitious refund scheme is that a debit is made to the inventory system showing that the merchandise has been returned to the inventory. Since the transaction is fictitious, no merchandise is actually returned. The result is that the company’s inventory is overstated. This might not be detected until months later, and for an employee hired on a temporary basis for the holiday season, they can get off scot-free.
  • Overstated Refunds
    Rather than create an entirely fictitious refund, some employees merely overstate the amount of a legitimate refund and steal the excess money. For example, if a customer returns $100 worth of merchandise, the employee might ring up a $200 return. The employee gives the customer $100 in return for the merchandise and pockets the remaining $100. This will result in inventory shrinkage worth $100.
  • Cash Register Schemes
    SALES SKIMMING: The most basic skimming scheme occurs when an employee sells goods or services to a customer, collects the customer’s payment, but makes no record of the sale. The employee simply pockets the money received from the customer instead of turning it over to his employer.
  • REGISTER MANIPULATION:Some employees might ring a “no sale” or another non-cash transaction to mask the theft of sales. The false transaction is entered on the register so that it appears as if a sale is being rung up. The perpetrator opens the register drawer and pretends to place the cash he has just received in the drawer, but in reality he pockets the cash. To the casual observer it looks as though the sale is being properly recorded.

  • FALSE DISCOUNTS:Employees with the authority to grant discounts might utilize this authority to skim sales and receivables. In a false discount skimming scheme, an employee accepts full payment for an item, but records the transaction as if the customer had been given a discount. The employee skims the amount of the discount. For example, on a $100 purchase, if an employee granted a false discount of 20 percent, he could skim $20 and leave the company’s books in balance.
    THEFT OF CASH FROM THE REGISTER: A large percentage of cash larceny schemes occur at the cash register, and for good reason—the register is usually where the cash is. The register (or similar cash collection points like cash drawers or cash boxes) is usually the most common point of access to cash for employees, so it is understandable that this is where larceny schemes frequently occur. Furthermore, there is often a great deal of activity at the register, with numerous transactions that require employees to handle cash. This can serve as a cover for the theft of cash. In a flurry of activity, with money being passed back and forth between customer and employee, an employee can often slip cash out of the register and into his pocket undetected.

    The most straightforward cash larceny scheme is simply to open the register and remove currency or checks. The theft is often committed as a sale is being conducted so that it appears to be part of the transaction. In other circumstances, the perpetrator waits for a slow moment when no one is around to notice him digging into the cash drawer.

    Tip: Proper training of temporary holiday employees will go a long way in preventing return fraud by customers, and proper pre-employment screening of new hires may help to prevent unknowingly employing a thief.

  • Despite the extra fraud risk during the holiday season, with a little bit of preparation and keeping a close eye on your records, there’s no reason the holidays can’t be merry and bright for shoppers and retailers alike.