Combating Refund Fraud: 'How-To' Case Studies (Part 3)

It's summertime, and it seems like the whole world is on vacation. Except for thieves. They're at work rain or shine. And although summer is supposed to be a lazy time of year, the end-of-season sales and back-to-school offers make for attractive opportunities to steal. Internal theft is responsible for the lion's share of retail losses, and the increased store traffic is a perfect cover for sticky-fingered employees.

The previous two columns (part 1 and part 2)presented case studies of internal theft and provided solutions and advice for other retailers to avoid being victimized in the same ways. This final column in the series examines even more methods employees find to rip off stores.

In the last column, we presented The Case of the Gang Members' Girlfriends: an opportunity for readers to help solve the case. We received an enormous response, and as promised, the best ones appear in this column.

If you didn't get a chance to write in last month, please see The Case of the Runaway Sneakers below. We're looking for the best solutions to this case of internal theft, so please post your thoughts in our loss prevention forum.


The story: Gang members encourage their girlfriends to obtain legitimate employment in retail stores in order to have access to customers' credit cards. In some cases, the girls "forget" to give the cards back to the shoppers (in other words, they steal the credit cards). In other cases, the women are recording the card information for later use. The gang members use the data or the cards to make purchases that they either fraudulently return so that their girlfriends can process cash refunds, or they keep the merchandise. Observers are pretty sure that the money being used to further gang activities, but it's difficult to prove the link and almost impossible to stop the thefts.

Solution No. 1: First, background checks. When talking to the clerks, look for telltale gang tattoos, which any girlfriend or gang member willing to participate in this scam would likely have. Then update programming at the terminals to prevent the full credit card number from printing, or being accessed, without a greater authorization. Set up a camera on a dedicated system (to prevent missed frames) with a view close enough to see everything the checker does with the credit cards. Coordinate with the credit card companies and police department to let the employee steal a card number off of a bait card and begin tracking the card. You will record the clerk stealing a card, (if you're lucky), see her passing it or its information to her boyfriend, then recover video of the boyfriend using the card, as well as electronic evidence for prosecution. For greater reliability, use a proprietary card with just enough on it for the initial bait purchase at the questionable register. To further improve tracking, use the same card for multiple suspects, but document what was purchased: different people and different purchases.
-- submitted by Elburn Templeton, Alpine Advantage Security consulting, Breckenridge, Colo.

Solution No. 2: The solution is actually very simple. Install POS equipment that allows the customer to swipe his or her own card and enter a PIN (if required). By using this technology, the employees never touch -- much less see -- the credit card.
-- submitted by Gene Thomas, Dacula (Atlanta), Ga.


The story: A small amusement park inside a shopping mall is experiencing a great deal of loss from the sales of entrance tickets. When customers enter the park, they are charged $30 for a wristband that allows them access to all the rides. Promotional coupons entitle the bearer to a $7 discount off the entrance price. When employees make a full-price cash sale, they proceed to void the sale and then ring it up again as a coupon sale, pocketing the $7 in cash. For each cash-paying party of four, cashiers keep $28. The money adds up fast to big losses for the park.

The solution: Three or four employees are involved in this scam. A good computer auditing system will allow managers to detect a pattern of voids and corresponding subsequent coupon sales. The system will also identify the cashiers involved in the thefts.

The advice: This scam was uncovered by accident, when a customer whose sale had been voided and rerung as a coupon sale was issued a defective wristband by mistake. If the customer hadn't complained to management, the thefts would have remained secret. Don't wait for blind luck to help you uncover thefts in your store. Invest in exception reporting software -- and use it.


The story: Some cashiers become convinced that the store is making plenty of profit, and they and their friends should be able to share in the bounty. In other words, they start sweethearting -- giving their friends unauthorized discounts. It escalates to fairy-tale level, where the cashiers pretend to ring up sales for their friends, who pretend to hand over cash to pay for the items. The only real part is that the accomplices leave with the store's actual merchandise.

The solution: Exception reporting is important, but human relations should not be overlooked. Do you know who your employees hang around with? Who meets them after work and on breaks? Do you recognize those friends when they present themselves at the register? If not, you should make an effort to observe these things.

The advice: Many retailers install auditing systems but don't use them. Make the time to run the reports and learn to analyze them. Just as important, take an interest in your employees. Knowing a bit about what's going on in their lives will help you figure out when something isn't right. Also, by establishing a relationship with employees, they become more reluctant to steal from you, a human being, as opposed to the faceless "corporation," which invokes much less guilt.

THE CASE OF THE RUNAWAY SNEAKERS -- help us solve the case!

The story: A large sporting goods store has a full-service shoe department. Every day, the store experiences heavy losses of athletic shoes from the stockroom. Some of the thefts are discovered when an employee brings down a particular shoe for a customer and finds only an empty box. Other times, the inventory just comes up short. Customers do not have access to the stockroom, but two dozen employees do.

The solution? If you have a solution or advice about how the store can stop these sneaker thefts or ideas about how they can avoid repeat problems in the stockroom, please let us know by posting your ideas to the following link:

About the author: Liz Martinez is the author of "The Retail Manager's Guide to Crime and Loss Prevention: Protecting Your Business from Theft, Fraud and Violence" (2004, Looseleaf Law), and is a retail security/loss prevention consultant and an instructor at Interboro Institute in New York City. She will be presenting retail business continuity case studies at the CPM East conference in November 2005. Liz can be reached through her website at or via email at