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Retail scams – 5 of the most common ones dissected


Retail stores generate a lot of business, making them a target for scammers. Over the years, there have been numerous retail scams in Australia and other places worldwide. These scams have caused significant damage to retail businesses. So, if you’re the owner of a retail business, you need to be aware of the most common retail scams and how you can identify them and nip them in the bud as early as possible.

In this post, we’ll take you through five retail scams that are most commonly employed scammers – scams that pose a significant risk to the financial well-being of your retail business.

1 . False cash returns

Retail thieves have been using false cash return scams to great effect for a long time. Here’s how a fraudulent cash return scam works – an employee will look through real customer purchase receipts to find a couple of passes that consist of high-value items. Next, the employee runs returns on the real customer purchase receipts to make it look like the products are being returned. The employee then proceeds to take the money from the cash register.

Even in today’s times, when there are so many security protocols in place, these scams are difficult to detect and not very complicated for scammers to execute. It also escapes detection from customers, as the fraud doesn’t involve stealing anything from them. False cash return scams are typically run in high-volume stores, where a few returns (fake or not) during a busy day don’t arouse much suspicion.

2 . Merchandise theft

Merchandise theft is another common retail scam, and scammers may use one or the other of the following methods to execute it – inventory manipulation or taking inventory outright.

Inventory manipulation is a form of merchandise theft where employees may manipulate product deliveries to pocket money. This method is quite difficult to execute in large retail businesses, as their inventory systems are so extensive and difficult to cheat. However, there’s always a risk of inventory manipulation in small retail businesses where the same employee is responsible for pricing, inventorying, and customer check-outs.

Outright inventory taking is another method that scammers use, and it happens in retail businesses that don’t have good inventory systems. For instance, if a retail establishment fails to input individual items, employees can steal without much of a fuss or bother. This form of merchandise theft is also possible in a retail business where the stockroom isn’t checked regularly for discrepancies.

3 . Collaborative theft

Shoplifting and sweethearting are two scams that fall under collaborative theft scams.

Shoplifting is typically committed by external individuals or groups, with the employees not knowing the crime. However, sometimes, shoplifting may result from a collaborative effort between an employee and a non-employee. For instance, an employee may create an opportunity for a non-employee to steal and demand a particular percentage of the stolen products.

The risk of collaborative shoplifting is high in retail businesses that are understaffed. Collaborative shoplifting can even happen in the presence of security cameras. For instance, after a non-employee has stolen a product, the collaborating employee may pretend to chase the non-employee. In such a scenario, camera footage would reveal that the employee was doing right by the business.

Sweethearting involves employees giving products from retail businesses to family and friends – either at greatly discounted prices or free. For instance, an employee at the cash register may intentionally leave certain products out of the bill during the billing process. Management-level employees may also be involved in sweethearting scams by manipulating inventory numbers. In this situation, the employees would make changes that would make it seem like the items given away by them for free weren’t stocked in the first place.

4 . Gift card scams

There are two types of gift card scams that scammers have used over the years – diverting refunds and swapping the gift cards out.

False refunds can be run on gift cards as well. Typically, employees create ‘store credits’ on gift cards to make this tactic work. Most of the time, retail business owners don’t pay enough attention to this type of fraud. However, if you are a retail business owner, you should take it seriously, as an employee can steal a lot of money by diverting refunds.

Swapping gift cards out is a method that works in high-volume retail stores. This tactic involves activating gift cards for legitimate customers, followed by giving the customers cards that aren’t activated. Employees run the gift card costs through the system, which makes everything look fine on the surface. However, the activated gift cards will most likely be used or resold by the employees.

5 . Credit card frauds

While credit card frauds aren’t as common as the methods we’ve covered so far, retail business owners should be aware of them. This is because if carried out, these frauds can put a big dent in a business’s reputation.

The first step of credit card fraud involves an employee collecting customers’ credit card information. Next, the employee may use the information for false processing sales, typically followed by processing false cash returns and stealing the cash. The employee may also fill gift cards by using the credit card information.

Card-holding customers at high-volume retail stores are most at risk of being scammed through these frauds, and most of them won’t even notice the false charges.

Preventing the retail scams – the top tips

The good news is that all these scams and frauds can be prevented by putting the following tips into practice:

●       Return auditing: Auditing returns is important for retail businesses selling high-priced items, which are at most risk of drawing false cash return scams. The workflow for returns should also be strict and involve a second employee checking the returns, which can go a long way in deterring a scammer.

●       Installing security cameras: Security cameras can help prevent merchandise theft, especially if they are installed in stockroom areas. While this is an uncommon practice for most independent retail businesses, it can help companies that have suffered from merchandise theft in the past. Security cameras are also necessary for preventing shoplifting.

●       Owner visiting the industry without announcing: If you’re a retail business owner who only sees the store on specific days at specific times, it’s time to change your habits. Sometimes, it’s best to drop in unannounced. This will keep your employees on their toes and may prevent merchandise thefts.

●       Proper outlining of policies for employees: To avoid sweethearting, it’s best to have a policy in place for deterring employees from doing it. In such a scenario, you can also punish an employee for sweethearting despite the policy.

●       Proper inventory management: An inventory management system can help you identify missing merchandise. When employees know they can’t trick the system, they’ll think twice before sweethearting or indulging in merchandise theft. The inventory management system should also include gift cards. This will allow you to keep track of the number of gift cards remaining.

In today’s times, retail business owners also need to consider buying a public liability insurance policy. Such an insurance policy can provide financial coverage if a third party files claims against your business owing to property damage or injuries. So, if you haven’t considered public liability insurance NSW to protect your retail business, it’s about time you did. To know more about it, click here.

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