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

Less formal, in-house databases allow cross-checking of refund or exchange recipients' names and addresses to spot repeaters. If someone's name appears more than once, a manager should review all the refund transactions. If the same item is being refunded several times -- especially if the person hasn't presented a sales slip for it - it's a sign that the person may be committing fraud.

To put an end to it, a manager can call and let the person know that they have appeared on the store's radar screen. Inquire what the problem might be with the product, and let the individual know that this is the last refund that the store will issue without a sales receipt. This type of record keeping also allows the store to cross check the date that the item was purchased with store records for that day.

If the same address appears on several refunds, that also bears investigation. Go through the personnel records, or use an Internet-based reverse directory to determine whether an employee might be supplementing his or her income by mailing store refund checks home. If a particular employee or several employees seem to be responsible for initiating most of the refunds, take a harder look to determine whether all of the refunds are legitimate. Also, double-check any vouchers that are processed out of sequence. This could be an indication that employees are falsifying a manager's signature.

A good supervisory technique that does double-duty as refund verification and customer service is to follow up with mail and/or phone calls inquiring about the customer's refund or exchange experience with the store. Send out a letter or postcard to all customers who receive refunds, asking questions such as "Was your refund handled promptly? Did our employees extend courteous service to you during the refund transaction? Would you shop in our store again?" As an incentive for the customer to respond, the store can offer a $5 coupon good toward the customer's next purchase. Mail that is returned because the address doesn't exist or because no one with that name lives at the address indicates that something is fishy

Likewise, managers or supervisors should pull refund vouchers out at random intervals and call the recipients, especially those who have received a high-dollar amount back. If someone professes not to know anything about receiving any refunds, there is a problem. If the refunds are legitimate, it offers managers an opportunity to impress upon the customers how important their business is to the store.


Professional refund and exchange databases, such as the systems provided by The Refund Exchange, provide refund authorization services through the retailer's POS system.

The cashier swipes the customer's driver's license or state ID card to initiate a product return. Similar to the way that credit card or check verification works, the data is transmitted to the host server for an approval for return authorization. Each store sets its own rules and policies. A return can be refused if it breaks the retailer's basic return policy, such as a return without a receipt, a return after the allowed return period, or multiple returns beyond the quantity of returns allowed within a given period. The system will also refuse returns based on overall return behavior that indicates return fraud or abuse, which is detected through the utilization of deterministic rules and statistical models.

The system is also set up to determine abuse, such as when a customer purchases merchandise without intending to keep it, or "rents" it. Renting occurs when someone purchases merchandise without intending to keep it, uses the item, and then returns it, such as an evening gown that is returned the day after the party.