Business crime prevention advice: Refund fraud

Business crime prevention advice: Refund fraud

Refunds are one of the worst areas for fraud and theft. Constant vigilance and a sound system of documentation and checking are necessary to eliminate dishonesty by customers and collusion with staff.

Goodwill gestures such as "We will gladly refund ...", unless rigorously supervised, open the door to dishonest claims for refunds.

There should be one cardinal rule when dealing with refunds: no sales receipt or other proof of purchase - no refund.


Common refund fraud techniques

  • Thieves steal goods from the store and return the goods for a refund, either from your store or another store that sells the same item. 
  • Fraudsters buy goods at discounted prices and return the goods for a full-priced refund at a later date.
  • Employees purchase goods at discount prices and have their associates return the goods (without receipt) for a full-priced refund.
  • Fraudsters buy goods, use them and return them for a refund. For example, someone buys a suit, wears it and returns it as though they hadn't worn it.
  • Employees keep receipts from previous sales and use these receipts to process refunds for themselves.
  • Employees take and 'return' the goods, using fictitious customer information. Such fraudulent returns usually do not have receipts.


What you can do?

Sales staff

  • Get a receipt from the person who presents the goods.
  • Record the customer's contact details, including a form of photo ID.
  • Check for obvious fictitious names, such as Joe Bloggs, U Sucker; or for incomplete details or a lack of ID.
  • Be suspicious if the customer appears nervous or hurried.
  • Be suspicious if the returned article is not wrapped in the store wrapping bag or paper.
  • Be wary of out-of-town returns.
  • Be aware that articles stolen in one branch can be used to obtain a refund in another.

Management

  • Insist on a 'No sales or other proof of purchase - no refund' policy.
  • Insist that your staff record the customer's contact details, including a form of photo ID. This will enable a later phone call to verify the customer purchased/returned goods, to ascertain why the goods were returned and to check the customer's satisfaction with service.
  • Where possible, have refunds issued by a customer service department or management - not the cashier. This will eliminate refund fraud directly at the cashier, where there could be collusion with customers and easy access to money and receipts.
  • Never allow a single person to process a refund. Always ensure a second staff member sees the customer returning the goods and countersigns the paperwork.
  • Be wary of customers in collusion with sales assistants.
  • Have one person at management level authorised to grant refunds.
  • Be wary of refunds first thing in the morning, just before closing and where there is only one person on the sales floor.
  • Be wary of a high number of returns every time a particular employee works.
  • Record the total number of refunds at the end of each month and investigate any fluctuations from month to month.
  • Ensure cash refunds are analysed by the various departments in conjunction with the internal auditor or accountant.
  • Check to see if the percentage of refunds is excessively high compared to the percentage of exchanges.
  • If a credit system operates instead of refunds, all of the above considerations still apply.

There is no simple solution to preventing refund fraud, but the measures above may dramatically reduce the opportunity for it to occur.