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Part
Two - Gift Card Fraud
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Yesterday we discussed the various means of
protecting your gift and stored value cards from being
used in a fraud scheme. Today, we are going to present
some of the more common methods of theft that we have
seen across the retail industry. This list is not
all-inclusive, and we would like to hear of any
additional methods you have seen related to thefts
involving gift cards or other stored value cards used
within your company.
How
do they do it?
 As
mentioned in our previous article, most retailers still
see internal theft being the driving cause of gift card
fraud. Yes, there are methods and incidents involving
larger, perhaps organized, external fraud schemes, but
many retailers continue to see internal theft as the
leading cause of loss.
The Switch
This fraud may be simple, but still one, if not, the
most commonly used.
An employee receives a gift card as payment from a
customer. The card after purchase still has a balance.
The employee switches the card with a zero balance card
lying by the register. The customer leaves with a zero
balance card, and the employee takes the customer's
original card with remaining balance. Next time your
customer comes back they will not be happy to learn they
have a card with no balance!
Register Shut Down
This method depends on when your gift card is
activated and can be difficult to catch if your POS
system doesn’t show when the register is off-line, shuts
down or missing a transaction.
An employee rings up a gift card and activates it at the
point of purchase. Before tendering the transaction they
unplug or conduct a hard shut down of the register. Did
the gift card activate? Did the transaction get
recorded? Some retailers have lost thousands because of
this method before realizing what had occurred.
Taking Numbers
Hopefully we see less and less of this method of
fraud based on improved card protection. But, if you
don’t have scratch-off labels on your cards or keep an
eye on blank gift cards, you could fall victim.
An employee writes down the numbers from the back of
blank cards and then waits for them to be purchased by a
customer. Once the card is activated, the employee has
the number and can use that card either by manually
ringing the gift card number at the POS or use it at the
register.
Card Laundering
Depending on the capabilities of your POS system, you
may find several loopholes in an associate’s ability to
obtain gift cards.
An employee rings the purchase of a gift card on
register #1 for $100. They complete the purchase, but do
not put any money in the register (no customer is
present). They go to register #2 and purchase two (2)
$50 gift cards, using the gift card of $100 as tender.
They then go back to register #1 and Post Void the
original sale. They now have two (2) $50 "clean" gift
cards that they paid nothing for.
Can't post void a gift card sale? What happens in your
POS system if they cancel the sale or suspend the
original transaction instead? If your gift card
activates before tender, you may want to check out the
ways you can negate a transaction but still activate a
gift card! Play with your POS system to see if there are
ways to manipulate the system.
Card Cloning
This method of theft is most often found with
organized groups or external schemes, but even the
internet has “how-to” documentation on rudimentary ways
of cloning cards (try searching “gift card cloning”).
Blank cards are taken from the store and the magnetic
card stripe is duplicated or re-programmed on additional
blank cards, replicating a gift card. The “customer”
then uses either the internet or a phone system to
monitor the balance on the cloned card. Once a balance
exists, the cloned card is used to purchase merchandise.
When the legitimate customer goes to use the card, it is
learned that there is no balance.
Fraudulent Purchasing of Gift
Cards
Although this method is actually acts of credit card or
check fraud, gift cards are often used as the
merchandise of choice.
Multiple purchases of gift cards in short periods of
time using the same credit card or purchasing high
dollar valued cards with checks or credit cards should
be looked at cautiously. Create restrictions or limits
of dollar amounts on a gift card to protect against
using fraudulent monies to purchase cards. Enhancement
of your reporting to quickly detect multiple purchases
using similar tenders should also be considered.
David Johnston has served the loss prevention
industry for over 26 years, holding various positions as
a practitioner, consultant and solution provider. His
experience and expertise throughout the years has
focused primarily on data analysis, loss prevention
technologies and the development of strategic
initiatives. Currently the Director of Business
Development with LP Innovations, David is responsible
for bringing LPI’s solutions to new clients and retail
verticals. You can reach him at
djohnston@lpinnovations.com or
connect with him on LinkedIn.
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