Common Return and Refund Fraud and What to Look for

by Andrew Hoeft | Mar 14, 2017 12:00:00 AM

Return and refund scams are very commonplace. It’s estimated that nearly 10% of all refunds and returns somehow abuse store return and refund policies. Learn about some common scams and 2 simple steps you can implement to help prevent your store from being defrauded.

Return and refund fraud are huge sources of loss for retail companies. Many companies are taking steps to reduce this number, seeking to lower the total amount of fraud committed, and avoid being defrauded by no-receipt returns and other basic schemes.

To aid in this, we’ll take a look at a few of the most commonplace return and refund frauds and scams, and then talk about two critical preventative steps that can help you avoid losses from fraud.

The Most Common Return And Refund Fraud Scams

Internal Refund Fraud

Internal refund fraud is conducted by employees. The most basic form is simple. A customer comes in with a return and a receipt, for a legitimate return transaction. The service desk manager (or another employee with authority to do so) then runs their return not as a receipted transaction, but as a no-receipt transaction. Then, they keep the customer’s receipt, and later “return” the item with the receipt and pocket the money.

Professional Refund Fraud

Some people make a living off of return and refund fraud. This can be done by purchasing equipment that can manufacture bar codes, and store sale receipts. Fake bar codes are created by the scammers and attached to merchandise which is sold at a low price. Then, the customer returns with a bar code that reflects a much higher price and attempts to return the items. By doing so, they can make a massive profit off of the “returned” items, as they pocket the difference in price between the two bar codes.


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In-Store “Quick Cash” Refund Fraud

Sometimes, refund fraud comes from items that were never really purchased in the first place. In a store with lax management and employees, it can be as simple as a customer taking a piece of merchandise off of the shelf, and walking over to the customer service desk to “return” it. Even without a receipt, some merchants will issue a refund for the item, especially if it’s low priced. Though this form of fraud is relatively rare, it can happen if your team isn’t paying attention.


The Two Most Critical Preventative Steps

It’s impossible to stop all return fraud, but there are two steps you and your team can take to minimize your risks of being taken advantage of.

Have Strict No-Receipt Policies – But A Good Escalation Process

Your store should have clear, strict guidelines on the processing of no-receipt returns. This can take the form of a price limit in which returns over a certain dollar amount won’t be processed without a receipt.

However, it’s also important to have a good escalation process. Although there are scammers out there, it’s important that your valuable customers don’t lose out on a return or refund just because of a few bad apples. Exceptions can be made given the right circumstances, but they should be limited to manager approval only.


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Use POS Systems To Track No-Receipt Refund Activity

Many POS systems have built-in tracking capabilities that allow personal information to be tied to an individual’s return activity. This can include driver’s license number, as well as information like addresses and names.

By tracking the activity of customers who often are issued no-receipt refunds, you can get an idea of their patterns and see if their activity is truly suspicious, or if they just are forgetful.

Even if you unable to tie no-receipt refunds to the customer, make sure to track the quantity and cash value of these refunds by the cashier. Monitor this report for irregularities that point to internal fraud.


While it’s not possible to completely avoid refund and return scams, knowledge of some common techniques and some basic guidelines with technological systems can massively reduce your store’s chances of being targeted by professionals, and allow you to reduce the amount of shrink and loss due to return fraud.


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