Return Fraud: Why You Need to Analyze Refunds

return fraud, open cash register, giving change

Your return policy clearly states that you offer cash refunds only if a customer has a receipt for their purchase. But that person standing at the customer service counter has a compelling story about why they don’t have a receipt, so your employee gives them a cash refund anyway. That’s one of the many ways return fraud occurs. 

People who engage in return fraud may be operating independently, but often, they’re part of an organized retail crime (ORC) group. ORC groups are sophisticated, coordinated, and know how to exploit loopholes in return policies. Just as businesses hire and train employees, ORC groups recruit and train members to fulfill specific roles. Your own policies and training procedures are the best defense against return fraud. 


Shrinkage Attributed to ORC

In 2018, retailers that participated in the National Retail Foundation’s Organized Retail Crime Survey reported:

  • About 12% of total returns are no-receipt returns
  • Of no-receipt returns, 21% are fraudulent
  • About 5% of total returns are fraudulent

Thieves might steal goods and return them for a refund, falsify receipts, or use other means of exploiting lax refund policies. Once they identify a store or retail chain that has weak policies, they may target the same locations over and over again.


Learning from Data

Your point-of-sale system contains the information you need to detect return fraud. A dramatic increase in returns, or an increase in a specific type of return (such as a return in exchange for a gift card) may mean thieves have targeted your store.

Store managers should be reviewing the details of return/refund transactions every day, and they should look at whether employees are following company policies. 


Monitoring Employee Behavior

With a video surveillance system, you can follow-up on return transactions to see whether employees are acting in accordance with company policy. For example, you could review a cash refund transaction to observe whether the customer produced a receipt, or whether the employee asked for a photo ID. Of course, the challenge for most store managers is that they don’t have time to match-up footage with transactions. DIGIOP CARBON can do that for you, creating succinct reports that you can review in a matter of minutes, instead of hours.