Black Friday, Holiday Sales Employee Fraud Could Top $15.4B

Retail experts predict holiday sales will bring in a record $1 trillion this season — an estimated $123.7 billion of it in online sales — and if past years are an indication, workers will steal billions of dollars from their employers. The problem is growing as traditional brick-and-mortar stores move to online marketplaces, where their old responses to shoplifting and return fraud don’t work.

The problem is that many online businesses are so focused on professional criminals and dishonest consumers that they’re overlooking fraud committed by their own employees, said Monica Eaton-Cardone, the chief operating officer of Chargebacks911, which helps businesses prevent or reduce the credit card or bank statement disputes, minimize their losses and recover lost revenue.

“They know brick-and-mortar security, but online sales create a lot of loopholes, and they’re still rather new to the environment,” Eaton-Cardone told Patch. “They’ve been selling at a physical store for 30-plus years, and move into an environment they don’t completely understand.”

But even businesses that have always operated in an online space are vulnerable to fraud. A Wall Street Journal investigation found that Amazon employees took bribes from $80 to $2,000 to delete negative reviews, restore banned accounts or sell confidential data.

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In one particularly egregious case of employee return fraud investigated by Chargebacks911, a call center worker’s theft went undetected for months. The employee knew of her company’s no-questions-asked chargeback policy and posed as a customer, ordering about $10,000 a day in televisions and computers only to seek refunds the next day.

When the pattern did finally did raise suspicion, “it looked like there were tons of refunds,” Eaton-Cardone said.

Here’s a look at the numbers:

• In 2017, retailers lost a total of $46.8 to employee theft, shoplifting, administrative errors, vendor fraud, cashier errors benefitting the customers and other losses lumped under “retail shrink.” Employees were responsible for $15.4 billion of the losses, according to a National Retail Federation / University of Florida survey.
• The same survey found that employee-related retail shrink rose to 33 percent in 2017, up from 30 percent in 2016.
• Nearly two-thirds (65.1 percent) of merchants said they’ve experienced employee return fraud, according to the National Retail Federation, and it’s increasing at a rate of about 5.5 percent each year.
• Losses are higher when employees work together. A report by the Association of Certified Fraud Examiners found median losses of $74,000 from a lone perpetrator, $150,000 from two co-conspirators and $339,000 when three or more employees collude.

The reasons employees steal vary. For the majority (58 percent), the opportunity simply presents itself because of loose or one-size-fits-all approach, according to the Certified Fraud Examiners April 2018 study, “Report to the Nations: 2018 Global Study on Occupational Fraud and Abuse.”

Another 21 percent said they resorted to fraud due to pressure to perform. In those instances, employees who earn a commission on sales made on the phone may convince their friends to buy in exchange for a refund once the sale is credited, Eaton-Cardone explained.

A smaller percentage — 11 percent — rationalize their theft.

“I’m not in their head, but I would imagine some are thinking they have been loyal employees and have devoted so many years that they think they’re owed additional compensation,” Eaton-Cardone said.

Some employees who would never think of stealing from another individual have the notion that “humans are not the same as a corporation, and a corporation isn’t humanized enough to create guilt,” she said.

Employers should respond with smarter technology and policies before they graduate from petty theft to high-value crimes, and to weed problem employees out before they begin colluding with others, Eaton-Cardone said, adding that employee fraud typically increases the uptick in shopping after Black Friday, when employers hire temporary staff.

Employee fraud is nothing new. One scam at physical stores that involves collusion works this way: An individual purchases an item, such as a computer, then returns the empty box to a friend who works in customer service, who rings up a refund without checking the box.

“You just stole a computer not caught on security cameras,” Eaton-Cardone said. “That has been going on for years, but now it’s migrating online.”

One thing employers can do is build in layers of protection. The employee who asked for chargebacks on thousands of dollars of purchases a day was fully familiar with the company’s refund policies. A better approach would be to be stingy with that information and build in redundancies “so no one person knows exactly how it works,” Eaton-Cardone said.

“If you’re an employee, you know the inside scoop, how to navigate, where to look,” she said. “Your job is to know what kind of steps the company goes through to find fraud.”

Some other suggestions from Eaton-Cardone:

• Set thresholds and limits and investigate customer behavior. For example, if a customer normally charges $1,000 in merchandise a month, investigate if purchases shoot up to, say. $5,000.
• Hire third parties to investigate fraud. That will increase the cost of doing business, but decrease the revenue loss. “Think of it as an insurance policy to make sure they get all their money,” Eaton-Cardone advised.

Photo illustration via Shutterstock