Holiday Fraud — Retailer, Buyer and Donor Beware

With the holiday season on the horizon, fraudsters worldwide are clamoring for the opportunity to take advantage of unsuspecting merchants, consumers and donors.

By Michael Hoffmann 

ACFE Research Editor 

 

With the holiday season on the horizon, fraudsters worldwide are clamoring for the opportunity to take advantage of unsuspecting merchants, consumers and donors. Holiday fraud is seen in many modes, which should put the general public and fraud examiners on high alert as the holidays hit full stride.

 

Return Fraud 

Return fraud is an issue that plagues retailers throughout the year; however, bustling holiday crowds and overstocked shelves provide greater opportunities for dishonest shoppers to take advantage of retailers around the globe. According to the National Retail Federation’s return fraud survey, it was estimated that of the $46 billion of merchandise returned in the U.S. during the 2011 holiday season, $3.5 billion involved return fraud. To combat this enormous loss, retailers must take measures to address this problem, even in the midst of the busiest shopping period of the year.

 

This type of fraud can take many forms, and it is not uncommon for employees to be a part of the scam. For example, ringing up a fake return and pocketing the cash is a popular return fraud option. In this case, no inventory is returned, so the loss is recorded as shrink, and the fraud might never be detected. Detection is the initial step in fighting return fraud, and that is extremely difficult to achieve during the hectic holidays.

 

The methods used to prevent this fraud are as varied as the scams utilized by fraudsters to perpetrate this type of theft. The key is to use resources wisely and concentrate prevention efforts in three main areas: technology (e.g., return authorization system and video monitoring), strict return policies and pre-employment screening for workers.

 

Online Shopping Scams 

In today’s fast-paced world, shopping could not be simpler. Finding and purchasing your holiday gifts online is quick and convenient. Unfortunately, the same adjectives apply to how fraudsters view their opportunities to scam buyers via the Internet. According to eMarketer, online sales for November and December will grow to $54.5 billion in 2012, a 16.8 percent increase from the 2011 holiday months. That figure alone has fraudsters salivating for the impending holiday season.

 

To avoid succumbing to online scams, it is imperative for buyers to be aware of common red flags and take regular precautions. For instance, referring to the Better Business Bureau website allows citizens of the U.S. and Canada to search and confirm the legitimacy of various companies. Scam sites often offer electronics or luxury goods at a discounted price, yet the purchaser never receives said merchandise. Checking the BBB to verify that a company holds a physical address and working telephone number will help derail online purchase fraud over the holidays.

 

False Charities 

Moreover, fraudsters are clever and desperate enough to pull at heart strings and exploit the giving holiday spirit by introducing fraudulent local, national and global charities. A great reference for U.S. donors to research their favorite charity in connection with the BBB is Give.org. The site offers tips and feedback to ensure donations are made to legitimate charities across the country.

 

In relation to the generosity felt throughout the holidays -- and the scammers who prey on that generosity -- the British Columbia government teamed up with Consumer Protection British Columbia during the first week of November to help educate families and communities about telephone charity scams. Some of the advice offered incudes:

 

Ask that the information be sent in writing before making a donation. 

Call the charity back to confirm that a fundraising campaign is actually being run. 

Research the validity of the charity in question online. 

Ask for the charitable tax number. 

 

Card Fraud 

Gift and debit card stripping are two popular ways fraudsters line their own pockets during the holidays, while scamming both retailers and buyers in the process. Fraudsters flock to gift cards because they do not contain any customer information. Therefore, once the fraudster obtains the necessary digital information and the card has been activated, it can be used as cash.

 

In addition, fraudsters are able to strip debit cards from unwitting victims without much effort. A special scanner collects the digital information from the card, and the cardholder is unaware of any discrepancies until fraudulent charges are noticed on the account.

 

In Africa, the Bankers Association of Namibia recently worked in conjunction with the Payments Association of Namibia to launch a fraud awareness campaign that will run through November 30. With the onset of the holiday season just around the corner, this campaign is meant to inform the public about card fraud techniques and provide tips on how to avoid fraudsters of this sort. Although prevalent during the year, incidences of card fraud are at their highest throughout the holiday season, so it is important for individuals to use caution when conducting transactions at an ATM or a point-of-sale device in the coming weeks.

 

ACFE Survey Results 

The ACFE recently conducted a survey of CFEs to garner feedback regarding occupational fraud during the holiday season. We received more than 850 responses. Of the CFEs who replied, 55.7 percent believe that the general level of fraudulent activity experienced in all organizations will increase slightly during the holidays. Another 23.1 percent believe that fraudulent activity will increase significantly in all organizations during this year’s holiday season. Moreover, when asked to identify the biggest contributing factor if an actual increase in the amount of fraud during the holiday period was observed, 60.5 percent of CFEs suggested increased pressure on the perpetrators (e.g., personal financial needs, meeting earnings requirements) was the main cause. Overall, CFEs are of the mindset that total fraud losses increase 20 percent during the holiday season when compared to the rest of the year. This means that fraud examiners view the incidence of fraud trending upward from the day after Thanksgiving through New Year’s Day.

 

Conclusion 

The holidays are generally a time of celebration and cheer with family and friends. Unfortunately, fraudsters lurk in the cold shadows and too often play the role of Ebenezer Scrooge, ruining the season for consumers, donors, retailers and companies alike. Preemptive measures should be taken throughout the upcoming holiday period to avoid being victimized by fraudsters and scam artists. Although they will continue to dampen the spirit of the season, their spirits can be dampened in turn by eluding their fraudulent ways.