Gift Card Return Fraud – How Small Businesses Can Avoid This Common Problem | EJ Gift Cards
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Gift cards are a great thing for retailers. From small businesses that sell gift cards every once in a while, to larger corporations who may sell thousands of gift cards in a day – gift cards have a variety of benefits that make them a very appealing product to sell to consumers.

First, retailers get the profits from the sold gift card immediately – which can help with cash-flow issues, especially among smaller retailers. Second, gift cards are a great way to market products and bring in more customers. Finally, gift cards can only be spent at your store – so you know that a customer who buys a gift card is likely to come back, see your products, and become a loyal patron of your business.

Gift cards have also made it easier for businesses to handle returns. Most business owners don’t like handing over cash for a returned item, or returning funds to a credit or debit card. Having the option to give a customer, a fully-loaded gift card for the value of their purchased item is a great thing – because it ensures that they will purchase another item at your store after their return.

Because of this, stores that sell gift cards often use them to give customers refunds on items that do not have a proof of purchase. And while this may seem like a fairly reasonable practice – after all, you don’t want customers to be angry because they can’t return an item – it’s not without its risks.

In this article, we’ll discuss a recent news story that shows the risks of using gift cards for “no-receipt” returns – and talk about how stores that sell gift cards can avoid this scam. Read on, educate yourself, and protect yourself from this common scam.

Denver “Return Ring” Defrauds Home Improvement Stores For More Than $35,000

The Denver Police Department recently busted an organized ring of scammers who were operating in the area. Led by Christopher Rodriguez, this ring of scammers defrauded local home improvement stores to the tune of more than $35,000, using an easy-to-pull-off gift card fraud technique.

The process that these criminals used was very simple – the reason they were able to steal so many gift cards is that they used a large team of organized, highly-competent scammers.

The basic scam that Rodriguez used was very simple – and it relied on a “no-receipt” return policy. Essentially, both Lowe’s and Home Depot allow “no-receipt” returns in some cases, at the discretion of employees and store managers.

no receipt return policy

On the surface, this is a great policy. After all, you would want a customer to be unhappy with an item, and unable to return it because they threw away the receipt. However, these “no-receipt return” policies can have an unfortunate side-effect – enabling the “return” of stolen merchandise for store credit.

This is exactly how this ring of scammers operated. They would target a store that sells gift cards, such as Home Depot or Lowe’s, and steal a variety of small, easy-to-conceal items that were relatively high in value. The criminals specifically targeted items that were small and would not trigger shoplifting sensors – allowing them to simply walk out of the store with stolen goods.

This is not exactly a new concept – after all, shoplifters have been stealing from stores since time immemorial. But this ring of criminals did things differently – they wanted to convert their stolen goods into cash. So how could they do that?

Simple. They just “returned” their items to the store – without a receipt. By doing so over a period of more than a year, they managed to defraud stores for more than $35,000 in gift cards – a staggering sum.

They would then sell gift cards to people they knew, or in some cases they would sell gift cards online in order to convert their value to cash, sometimes for up to 70% of face value.

Mr. Rodriguez turned this relatively simple scam into a comprehensive, well-organized operation. He often employed other former criminals who were released from jail on bond, and allegedly provided room and board for those who participated in criminal activities, according to 9 News.

It may seem like it would be easy for a store to track these fraudulent returns, especially if the same individual returned multiple items without receipts. However, by targeting multiple regional stores, and using different individuals to return items, Rodriguez and his crew of scammers avoided detection for months. Eventually, they were caught due to an electronic monitoring device that Rodriguez was equipped with due to another pending criminal trial.

So how can small and large businesses that sell gift cards avoid this scam? Well, it’s very difficult to totally eliminate return fraud – that’s simply part of doing business. But with some simple steps, you can reduce your business’s chance of being targeted by a complex gift card fraud ring.

Let’s discuss some of the ways in which you can protect yourself now.

Protect Yourself From Return Fraud With These Tips

It’s estimated that about 95% of all businesses are targeted by return fraud at some point. The above example of return fraud is an outlier, of course – most return fraud is performed by a single individual looking for a quick payday, not an organized crime ring.

Still, to avoid losing money when selling gift cards or issuing them for store credit, there are some steps you can take to help protect yourself from return fraud. Here are our recommendations.

Fight back against shoplifters – The best way to prevent return fraud from happening is to reduce theft. Shoplifting is a perennial issue among retailers, and it’s very hard to prevent it entirely. Still, there are some steps that you can take to reduce shoplifting and protect your business. Here are a few of the best ways.

  • Use anti-theft gates and security devices – While an anti-theft gate is a significant monetary investment, it pays off in the long run if it can prevent shoplifting. Anti-theft gates don’t just help identify shoplifters when they try to steal – they’re a huge deterrent to potential shoplifters.

    When a shoplifter sees that you’re using security devices, they may be less likely to target your business – as it’s more likely that they will get caught.
  • Identify your most-stolen items and protect them – If you have a modern POS system and inventory tracker, it should be easy to identify the items that are most often stolen or “lost” in your business. Typically, these are small, high-value items such as batteries or electronic devices. If you can identify these items, you can use tactics such as locked boxes, security boxes, or other security precautions to protect them.
  • Train employees to recognize signs of shoplifters – Stopping shoplifting starts with your employees. You should train your salespeople to always keep an eye on everyone in the store – especially if they seem shifty, or uninterested in being helped by a salesperson.

    Customer service representatives should also be trained to watch for customers who leave without purchasing anything, or otherwise exhibit suspicious behavior.

You may never be able to fully stop shoplifting – but with these tips, you can reduce your risk of falling victim to a large-scale gift card scam, such as the one mentioned above.

Create an airtight return policy – The best way to protect yourself from return fraud is to have a totally airtight, comprehensive return policy. Restricting return times for frequently-stolen items like electronics, for example, is a good way to help reduce return fraud.

Your policy should also be very clear about whether or not you will accept no-receipt returns. If you choose to accept no-receipt returns, you should also set forth guidelines about how many items can be returned.

Require ID for all no-receipt returns – This is a surefire way to mitigate return fraud. In our above example, Christopher Rodriguez and his team of fraudsters were able to avoid detection for a very long time, because they could disguise themselves and return items without receipts at multiple store locations.

Requiring a government-issued ID for each no-receipt return is a great strategy for reducing your risk of falling victim to organized fraud. Even if a fraudster can disguise themselves and come to your store to return an item, you will be able to track their activity if you require a government ID for all no-receipt returns.

This has the additional benefit of not alienating your existing, honest customers. Sometimes, a customer will need to return something without a receipt – it happens. And any customer who is honest will not mind providing their ID, and having their return tracked.

Set a limit for no-receipt returns – Again, this is a good way to prevent gift card fraud caused by stolen merchandise. Think about how many items a “reasonable” person would need to return without a receipt – and create a limit for no-receipt returns, based on this.

For example, a normal customer may need to return one or two items without a receipt every month – but no reasonable customer would need to return dozens of items with no receipt. Creating a limit for no-receipt returns is a good idea, because it can help you prevent fraud, but it will still have a minimal effect on honest customers.

Use a centralized returns database – If you operate more than one store, you should implement a POS system that includes a centralized return database. If your stores use individual, separate returns databases, you may be at risk of fraud. A fraudster could simply steal from one of your stores and return merchandise to the other – or vice versa.

By doing so, they can avoid detection entirely. In our above Denver crime ring, one of their keys to continued success was constantly visiting different stores – and never stealing from/returning items to the same store. This helped them avoid detection, and sell gift cards for a profit.

Train employees to recognize signs of fraud – Any employee who is working the returns desk should be acquainted with the basic steps that they can use to recognize fraud. Has this customer returned many items without receipts in the past? Do they look nervous? Are they unwilling to provide their ID when returning an item without a receipt?

If you train your employees to recognize the signs of return fraud, they’re more likely to be able to escalate to a manager, and refuse the return of fraudulent merchandise. Take the steps to educate your employees about this type of gift card return fraud, and you’ll be more protected from scammers.

Don’t Fall Victim To Gift Card Scammers – Protect Yourself With These Tips!

If you own a business that sells gift cards, or you work in a larger store that sells gift cards, you need to be aware of the rising trends in gift card return fraud. By following our above advice, or recommending a new approach to your managers, you can reduce the risk that your store falls victim to malicious, organized gift card fraud.

So don’t wait, and don’t risk being scammed by organized fraudsters. Follow our tips and educate yourself – you’ll be sure to catch scammers who try to take advantage of “no-receipt returns”.

Interested in learning more about gift cards, and how they can be used in your small business? Check out the EJ Gift Cards blog now! At EJ Gift Cards, we’re dedicated to educating both retailers and consumers about the benefits – and risks – of gift cards. So check out our other posts today!

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