$15.4B in Employee Fraud Undercuts Black Friday Sales Boost

$15.4B in Employee Fraud Undercuts Black Friday Sales Boost
Chargebacks911 | Monica Eaton Cardone Photo

Monica Eaton-Cardone, COO of Chargebacks911, reviews the rising issue of employee fraud, undermining Black Friday sales growth.

Rising employee fraud now accounts for $15.4 billion of $46.8 billion in annual retail shrink. As growing losses threaten the Black Friday and holiday season outlook, loss prevention specialist Chargebacks911 analyzes the data and potential solutions.

(Tampa Bay, FL) November 19, 2018 – eMarketer recently projected that 2018 holiday-season retail sales would cross the $1 trillion threshold for the first time, including $123.7 billion in eCommerce sales.(1) Yet rising employee fraud threatens to offset sales gains; while total retail shrink (from thefts, fraud and other losses) fell from $48.9 billion in 2016 to $46.8 billion in 2017, employee fraud rose from 30% to 33%—$14.7 billion to $15.4 billion—over the same period.(2, 3) Chargebacks911, a leading dispute mitigation and loss prevention firm, warns merchants to be aware of the risk of employee fraud and its potential link to increased friendly fraud, and shares advice to minimize holiday losses.

Employee fraud can take many different forms. According to the Association of Certified Fraud Examiners (ACFE), the leading types of occupational fraud in the retail industry include noncash fraud (such as stolen goods or theft of customer data), impacting 34% of businesses; corruption, at 28%; billing fraud, at 20%; and cash-on-hand fraud (money taken from a register till or vault), at 19%.(4) A National Retail Federation (NRF) study on return fraud found that 65.1% of merchants have experienced employee return fraud.(5) LPM Insider shared examples of a refund desk employee who pilfered $106,000 over a 14-year period and a service desk manager who pocketed $186,000 over seven years.(6)

Recent news stories reveal that Amazon is investigating employees who have reportedly accepted bribes of $80 to over $2,000 to delete negative product reviews, restore banned merchant accounts or sell classified internal data.(7) And while a single rogue employee can cause substantial losses, the ACFE report showed that the median losses are far greater when fraudsters collude: $74,000 for a lone perpetrator, $150,000 for two co-conspirators and $339,000 when three or more employees carry out a fraud scheme together.(4) Employees may also team up with friends and family, coaching them on how to use refunds and chargebacks to get merchandise for free. In these cases, rising employee fraud can contribute to an increase in friendly fraud and escalating chargebacks, refunds and reships.

“Some merchants are so focused on professional criminals that they completely overlook the threat from within,” noted Monica Eaton-Cardone, co-founder and Chief Operating Officer (COO) of Chargebacks911. “The same technological advances that are driving eCommerce growth have enabled more sophisticated forms of employee fraud and a new breed of employee-linked friendly fraud. Fortunately, technology can also be used to track and identify suspicious activity; and retailers can implement policies that will help them detect and deter fraud.”

A PricewaterhouseCoopers (PwC) survey asked companies what contributes to employee fraud: 59% of respondents cited opportunity as the leading factor; 21% blamed incentive/pressure to perform; and 11% indicated employees use rationalization to justify their actions.(8) While the report primarily focused on internal corporate fraud, Eaton-Cardone says the findings—and the solutions—are equally relevant to retail:

  • Opportunity – Technology-based controls can make it easier to detect fraud while deterring employees from committing it in the first place. This can range from security cameras and monitoring customer service calls to computer programs and exception reporting that flag suspicious activity, such as an employee issuing multiple refunds and reships to the same customer.
  • Incentive – When sales staff work on commission or are required to meet quotas, some may resort to fraud to keep their jobs—such as asking family and friends to make purchases and return them later. Retailers should examine if aggressive sales goals are contributing to fraud, and offer anonymous methods for employees to share their concerns, such as managers who encourage unethical tactics to boost sales figures.
  • Rationalization – Some employees may see fraud as a victimless crime or feel it’s justified if they believe they’re underpaid. Business ethics and compliance training can help employees understand exactly what activities constitute fraud and the potential repercussions, while reward and recognition programs can encourage positive behaviors and reduce the likelihood of employee fraud.

“It’s important to have controls in place to prevent, identify and address employee fraud, because if it’s left undetected, your losses can grow exponentially,” warned Eaton-Cardone. “Employees who get away with petty theft may graduate to larger-scale fraud. It’s also critical to weed out any fraudsters before they have a chance to bring in collaborators, whether fellow employees, new-hire referrals, or friends and family posing as customers.”

Eaton-Cardone emphasizes that merchants’ revenues face ongoing threats from multiple fronts, including professional criminals, friendly fraudsters (or “cyber-shoplifters”) and unethical employees. She also cautions retailers to beware of profit parasites—such as chargebacks, returns, refunds and false declines—that further erode earnings. In light of these revenue risks, Eaton-Cardone counsels merchants to take a proactive, multi-layered approach to fighting fraud, and she is committed to empowering them with the tools to reduce losses and sustainably grow their businesses.

Chargebacks911’s mission is to educate and support eCommerce merchants with services designed to optimize profits, minimize chargebacks and combat fraud. To that end, Monica Eaton-Cardone and her team will be participating in a number of upcoming industry events, including the 2018 MAC Midwest Regional Seminar in Irving, Texas; the 2018 Phocuswright Conference in Los Angeles; DRV Fraud Prevention Day 2018 in Berlin; and the MoneyLIVE Summit in London. For details on Chargebacks911’s comprehensive risk management solutions, informative articles and other merchant resources, visit https://chargebacks911.com.

About Chargebacks911/The Chargebacks Company

Chargebacks911 empowers businesses to combat constantly evolving fraud tactics and mounting customer disputes that directly threaten profitability. Operating as The Chargeback Company in Europe, Chargebacks911 has pioneered effective, industry-leading solutions designed to reduce chargeback fraud, alleviate processing costs, mitigate risk and recover revenues.

The company’s unparalleled expertise and proprietary technology have earned three consecutive CNP Customer Choice Awards for Best Chargeback Management Solution, three successive AI Lions’ Den Awards for Best Airline Industry Solution, and Gold and Silver Stevie Awards from the American Business Awards (ABA). With innovative and highly scalable services ranging from Intelligent Source Detection™ (ISD) to Tactical Representment, Chargebacks911 uncovers the true source of chargebacks, battles unjustified disputes, rescues lost revenue, safeguards reputations, and defends against relentless, ever-changing cyberthreats.

Discover why Chargebacks911 is a hero to the payments industry, nemesis of fraudsters and trusted protector of over 2.4 billion transactions per year, representing clients worldwide—visit https://www.chargebacks911.com.

  1. “Holiday Sales to Cross $1 Trillion for First Time”; press release issued November 6, 2018.
  2. National Retail Federation. “NRF/University of Florida Survey Says Retail ‘Shrink’ Decreased to $46.8 Billion in 2017”; press release issued June 6, 2018.
  3. National Retail Federation. “NRF/University of Florida Survey Says Retail Shrink Increased to $48.9 Billion in 2016”; press release issued June 22, 2017.
  4. Association of Certified Fraud Examiners. Report to the Nations: 2018 Global Study on Occupational Fraud and Abuse; April 17, 2018.
  5. National Retail Federation. 2017 Organized Retail Crime Survey; November 17, 2017.
  6. Loss Prevention Media Contributor. “Retail Refund Fraud and Abuse”; LPM Insider; January 21, 2003.
  7. Emont, Jon; Laura Stevens; and Robert McMillan. “Amazon Investigates Employees Leaking Data for Bribes”; The Wall Street Journal; September 16, 2018.
  8. Pulling Fraud Out of the Shadows: Global Economic Crime and Fraud Survey 2018; February 2018.


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