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Retailer, Beware! How a Retail Management System Can Help You Eliminate Return Fraud

A retail environment is enormously complex, and a retail management system helps to impose order within that sometimes chaotic environment. A retail management system is powerful software that automates multiple processes from point-of-sale to the back office. A retail management system also provides centralized control—even in multi-store environments.

Fraud in Retail

Fraud and theft has always been a major problem for retailers, and losses are unfortunately a regular part of the business. Retailers lose about $30 million every year due to organized retail crime and professional criminals—and that figure doesn’t even include losses from amateur shoplifters. The difference is that organized criminals steal large quantities of goods (and often through insider connections), and the loss from each incident can be substantial. Amateurs work alone or in pairs, and while losses there are also a major problem, for each incident that number tends to be lower than that of an organized effort.

One particularly vexing type of fraud is “return fraud,” which in itself costs retailers over $10 billion in losses every year. Return fraud is when an individual or group returns stolen merchandise at a store for a cash refund, or purchases an item with counterfeit money or checks and then returns it for cash. A more amateur form of return fraud is when an individual purchases an item, uses it a few times, and then returns it (known as “wardrobing”). There are dozens of fraud variations, including “price arbitrage,” which involves buying a less-expensive version of an item that has a more expensive equivalent, and then attempting to return it for a refund against the higher-priced item.

As these myriad forms of fraud are complex, there is no easy solution. However, losses can be minimized through a combination of better hiring practices and training, defining expectations through written policy, and the use of a combination of security technology and a comprehensive retail management system.

Hiring & Training

Employee hiring and management is a major part of the retail operation. Despite the big losses that occur from retail fraud and organized crime, nearly half of all retail losses can be attributed to in-house sales associates. This may take the form of informal shoplifting, but often organized retail crime works by having someone on the inside.

Fraud prevention starts with hiring the right people, and this involves careful screening and background checks. Once hired, every employee should receive training on loss prevention. Additionally, every employee should be educated on methods for preventing loss, how to identify theft when it occurs, and how to deal with the situation when it happens.

Procedures & Policies

Thieves will target your store regardless of your procedure and policies, but having these things in place will help in responding to incidents of theft or fraud. Procedures on properly auditing paperwork, receipts, and purchasing orders are essential, since this is often where discrepancies will occur when theft is taking place in-house. Having an audit trail of all transactions, including in the purchasing and inventory areas, will help spot insider theft.

The Technology: The Power of a Retail Management System

A retail management system will offer tools for fraud and theft prevention, as well as integration with third party security systems. Part of the fraud prevention system may include integration with other software systems, like ClearCommerce or CyberSource, which detect fraud patterns in your transactions by combining information from thousands of customers. A retail management system integrated with fraud prevention tools may also maintain a list of IP addresses that are associated with known criminals, so that online transactions coming from those addresses will be flagged.