Return/Refund Fraud

Although shoplifters can use or resell merchandise they steal, they are often unable to get as much money for the items on the black market as they can if they return the merchandise. Refund fraud occurs when a person is given cash or store credit that they are not entitled to. There are a number of ways refund fraud occurs in retail settings. These include:

Returning merchandise that was shoplifted for a refund or credit. Sometimes a subject will just enter a store, pick up an item and proceed to the register to “return” the item.

Picking up a receipt that has been discarded by another customer, “shopping” for those items then returning them.

Buying merchandise on sale or at a store with lower prices, and then returning it for the full or higher price.

Buying an item and using it once, or until it is not needed anymore, and then returning it. This often occurs with formal wear and holiday products.

Buying items with a bad check and then returning them for a refund or store credit before the check is returned by the bank. Even if they eventually turn up on the bad check list, they now have the equivalent of cash to spend in your store.

Redeeming a rebate offer and then returning the product

Preventing Refund Fraud

An obvious first step: make sure you sell the product the customer is trying to return.

Have your refund/return policy clearly posted in a number of places. STICK TO IT! If you bend the rules for one person it becomes difficult for other employees to justify not bending them for someone else.

Make sure your policy is completely understood by all employees. If an employee tells a customer that they can return something only to have a different employee say they cannot, it confuses and irritates the customer.

ALWAYS require a receipt or other proof of purchase to process a refund. If possible, develop a way to issue gift receipts so customers who receive an item as a gift can return it.

Have all customers who receive a refund fill out a return slip with their name, address, phone number, reason for returning the item and signature.

Require ID for returns and refunds, and compare the information from the ID to the information on the return slip. Write the ID number on the return form.

Keep a database of customers who return items. This can be as simple as a card file with customer names to a more complex computer program that can match names, addresses, and frequently returned products.

Do not give store credit or allow an exchange for other merchandise without a receipt or proof of purchase.

If a customer does not have a receipt or other proof of purchase, allow them to exchange the item for the exact same item only. This way, the legitimate customer with a defective product is satisfied.

If you are going to give the customer without a receipt a refund anyway, explain to them that you can only give them as much as the lowest sale price offered within the last 3-6 months or similar time frame. Legitimate customers will probably not accept this offer if they know they paid full price; fraudulent customers will take anything.

Consider mailing refund checks instead of giving cash refunds. It may be appropriate to set a limit on the amount a customer can receive for a cash refund (i.e.: $25). Any refund above this amount should be refunded by check. This also helps verify the address and identity of the person asking for the refund.

Have anyone who enters your store with merchandise from anywhere check their bag as they enter. This helps prevent shoplifting and if they bring an item to the registers to be “returned” you will know whether if they had the item when they entered the store, or if they picked it up off your shelves.

Do not allow employees to handle their own returns. Require management approval to finalize a refund.

Require that all merchandise be returned with its original packaging. This can help indicate where it was originally offered for sale, and even how long ago it was purchased.

If you suspect a refund fraud attempt, notify other branches of your business, and other local merchants. If a fraudster can not complete the return at your store, he is likely to try again elsewhere.