Retailer Beware: Refund and Exchange Scams

What every retail manager and security director needs to know about common refunds and exchange scams and how to prevent them


In order for a store to avoid hemorrhaging money because of fraudulent refunds and exchanges, appropriate policies must be developed and adhered to, and excellent records of such transactions must be established and maintained. Depending on the size of the operation and the technological savvy of the owners or managers, records can be as simple as written logs, or they can be as simple as the use of refund software. Neither is too difficult to implement, and both have their advantages.

The first thing to do is to make sure that a sensible return and exchange policy is developed and that all employees understand it and commit to adhering to it. Consumer laws vary, and stores may be obligated to provide refunds or exchanges for particular reasons or within specified periods of time under state and federal statutes. A basic step is to be sure that management is familiar with these requirements and that they are incorporated into store policies. The policies should be posted at the register and/or customer service desk so that consumers aren't surprised if they should with to make a return.

To avoid being burned by bad checks, retailers often establish a cash refund ceiling. For refunds over a certain amount, in other words, the store will not give out cash, but will send a refund by mail. However, this is one policy that it's best not to post -- if thieves know what the ceiling is, they will grab items with prices just under the limit off the sales floor and try to return them for a cash refund.

Gift receipts and credit vouchers are good deterrents to refund and exchange scams. A gift receipt is given to the purchaser, who includes it with the gift item. These receipts make returns easier for recipients, but it doesn't include the price. Unless the person wants to exchange a gift, he or she won't know the amount the giver paid. However, the store maintains that information.

A credit voucher can be issued when a customer wants to return an item without a sales slip, when the return is attempted a fairly long time after the original purchase was made, when the merchandise is a gift, or when the items were purchased by a third party, who paid for them with a check or credit card. The voucher allows the person to make the return, yet the store does not have to part with any money to keep the customer happy. Dishonest people generally do not want to fill out forms or show identification, so requiring basic information when issuing a credit voucher can help eliminate fraud. Credit vouchers should be numbered sequentially and require the signature of a manager or supervisor to be issued. Here's where a log or computer software system comes in handy: by keeping track of the recipients and scrutinizing repeat customers.

Also, it's important to pay attention to the clerks who initiate these credits. If one employee is particularly active in this area, it could be a sign that the person is issuing fraudulent vouchers and using them or passing them on to friends who redeem them for merchandise. As with other cash management functions, a manager or supervisor should be required to authorize and countersign any refunds.


It's also a good idea to establish and maintain a database of refund recipients, which can be done on the store's desktop computer or through professionally designed software systems.