I have been reading up on Point of Sale (POS) Fraud recently. The reason for this was because I recently experienced some disturbing events at different shopping locations. It got me thinking about how employees are able to steal either cash or products from the organisations they work for. This short essay will look at what is meant by Point of Sale Fraud. It will also highlight the three main branches of POS Fraud. These currently include Void Sales, False Returns, and Sales Processing. However, from my recent experience I now propose another addition to this trio. I call it ‘False Processing’. Read on to find out more and learn about my recent experience.
Firstly, let me clarify the type of fraud this essay is making reference too. It is called, ‘Occupational Fraud’. This type of fraud refers to an employee of an organisation using their position to gain personal enrichment through the manipulation and misuse of their employer’s resources (and/or assets) (Mohlenhoff & Uhl, 2013). According to the Association of Certified Fraud Examiners, this type of employee fraud can cause more financial loss compared to a third-party fraud. Employees will try to hide their actions in many different ways. Sometimes, it is impossible to narrow down the exact employee that carried out the fraud. However, we must first look at the existing types of Point of Sale Fraud. This will allow us to grasp a deeper understanding before moving onto my proposed ‘False Processing’ type.
POS Theft / Fraud
There would seem to be two different terms used interchangeably. The first being ‘Point of Sale Theft‘ and the second being ‘Point of Sale Fraud‘. Point of Sale Theft is when monetary values are stolen but without any attempts to hide the evidence. Point of Sale Fraud is not supposed to be discovered and their tracks are covered. However, deemed not to be discovered in the short-term, it can sometimes be hard to discover the fraud at all.
The POS Trio
There would seem to be three types of Point of Sale Fraud. The first is termed ‘Void Sales‘. Void sales fraud is commonly associated with cash sales. The overall aim of this fraud is to stop the sale from being recorded. The end goal would be to steal the proceedings from the unrecorded sale. If the sale has not been recorded, then the money cannot be missed. This will mean the end-of-day banking will be balanced. It is important to note that a real customer is required to initiate a sale. The money is not stolen from the cash register, but stolen from the money the customer hands over. The employee will process a void sale which removes the sale from the registry. This however means that a standard receipt of sale will not be passed (or offered) to the customer. This is because the sale technically did not take place according to the registry. What about a potential solution?
A possible solution would be to require a receipt be processed and given for each and every sale. This could limit the potential to abuse this type of POS Fraud. Remember, the customer still gets to walk away with the goods but no sale has been processed. This would mean that the customer has no receipt and therefore, will struggle to claim on any warranty legally due. There is a way to attempt to detect this type of fraud. Stock control could be monitored for ongoing discrepancies. This could lead to an internal investigation where more detailed facts could emerge.
The second of the POS Fraud trio is termed, ‘False Returns’. This requires the processing of a fictitious customer returning an item. The refund would then be placed in the pocket of the employee. It is reasonable to assume that some employees will have the authority to process certain types of returns. A real customer would not generally be used for this type of fraud. This is because the real customer will want the cash back or credit returned to their payment method. Processing the fake return updates the bank registry so the money does not need to be hidden. The issue here is that no physical goods have been returned. Additional to this process, there is a slight variance that an employee could use as a tactic. A real customer could return an item but the employee organises a larger refund amount. The small portion is given to the customer to cover the cost of the item. The remaining refund balance is then taken by the employee. This may not be an issue if an organisation develops certain procedures to handle returns.
A possible solution would be to make it compulsory that all returned items be countersigned by another employee. An organisation would also demand that a return is not signed off until the physical item has been attached to the return documents.
The third in the trio of POS Fraud is termed, ‘Sales Processing’. Many organisations have technology that uses bar code scanning to recognise items. This is translated into a product cost but also can update the stock levels automatically. However, the responsibility to check that the bar code matches the item leaving the premises is down to the employee. This allows a larger item to be taken but the use of a lower item bar code will be scanned. However, it is quite possible for this fraud to take place without your employee ever knowing. A customer could switch the bar codes hoping to pay the lower price for the expensive item. Unless your employee recognises that this price seems a little cheap for the item being sold, then the fraud will still take place.
We have three different types of Point of Sale Fraud that published material references. However, in my recent experience I can now seriously propose a fourth type which I have termed, ‘False Processing’. First, let me explain how I came about recognising this proposed False Processing type.
My Experience of POS Fraud
There were two instances that I have been subjected and the first had me thinking but not questioning. The second however, did confirm my suspicions and as such, I proposed a fourth type of POS Fraud.
The first instance happened in my local Spar shop based in Burnley, Lancashire, United Kingdom (I will not mention the exact store to protect myself from retaliation). I had purchased three items this day which consisted of two larger bottles of milk and a loaf of bread. The total was £3.50. I paid in cash at the checkout. The first issue I noticed here was the cashier had not scanned every item. The loaf of bread had not been scanned. I could clearly see on the sub-total screen that the register stated £2.50. However, when the cashier told me the total amount, he said £3.50. I thought it might just be a mistake on the screen. I paid £3.50 for the items and was indeed handed a receipt for my purchases. However, I instantly checked my receipt without moving away from the checkout. I noticed that the bread was indeed missing from the receipt. I asked the employee to please provide me with a receipt that detailed all my items with the correct amount. He first did this verbally by pointing to my items, totalling them up and confirming what I had paid. He asked if this was ok and signalled the next customer to come forward. I insisted that he print me a receipt that details everything purchased. He shrugged his shoulders and scanned all three items again, the register popped open and he shut it again. He handed me my second receipt which did show all the items and my correct total. I just walked away and thought the employee was having an off day. I did not think about this much afterwards until my second encounter.
The second experience had been while I was visiting a store called PoundWorld based in Burnley, Lancashire, United Kingdom. I purchased eight items which valued my expense at £8.00. On the register it stated £6.00 but the cashier asked me for the full eight. I was cautious this time around but still went ahead with it. I handed over the £8.00 and what I saw next confirmed my thoughts. The cashier placed two-pound coins on the side of the cash register, and then placed the remaining £6.00 in the cash drawer. I was given a receipt and she immediately began serving the next customer, shoving my items to the side. I checked my receipt and yes, it only stated £6.00 with only six items. Even though I had left the store with 8 items and had purchased and paid for eight items.
False Processing – Point of Sale Fraud
From my experiences mentioned above, I came to the conclusion that there must be something going on here. I began to research Point of Sale Fraud. I noticed that there was only a brief mention about not putting items through the checkout. It had fallen within the ‘Void Sale‘ of the trio. However, I did not see this as a valid description of what I had experienced. Therefore, I have labelled this experience the art of False Processing.
False Processing refers to an employee trying to receive personal financial benefit from their employer by means of stealing cash directly from the customer. This process is very hard to track. There would be no evidence within the cash register that the balances did not match. A receipt is being provided which to the untrained eye, seems normal. The process of separating cash from the registry is a common procedure within organisations.
The customer would hand over the value they would expect to pay. The cashier has only placed a certain amount of items purchased through the checkout. The balance of the registered products gets placed into the register and the remainder lines the pockets of the employee. The customer would receive a receipt but there would be items missing from the list. This process would generally be aimed at cash transactions. Paying by card would make it impossible to take the money in this way. A separate transaction such as a transfer would need to be made. This would leave evidence. Is there a possible solution to finding out if this is happening?
A possible way to examine whether this is happening would be to check stock levels. An organisation’s stock would be depleting without the sales to back it up. This is direct occupational theft and as such, is labelled as such; Point of Sale Fraud by False Processing.
I termed it False Processing because the cashier is giving the impression they are indeed processing all the products being purchased. However, they are not scanning each product and keeping the difference in value.
Potential to cause further harm
I was thinking about this addition to the trio in-depth and something else came to my attention. If your receipt does not state all the products purchased, you will not have the required proof for any warranties to be honoured. Organisations will require a receipt that proves the item was purchased at their store. If this cannot be provided then the organisation does not have to deal with a request. The customer could be far worse off some months down the line.
I would stress that customers check the balance of the items, and the list of contents on the receipt before leaving the shop. However, I have noticed that some shops do not give itemised receipts. They only give a total value of purchase along with the transaction ID, the date and the time.
Further points of control
Below are some suggestions to try narrow the potential for Point of Sale Fraud by all four categories.
- Technology increases controls as smart cash registers are linked into other business systems (particularly stock). The use of technology can install controls with little disruption to customer service.(ii) Requiring management approval or two signatures to process returns.
- All returns processed without the physical goods attached or identified should be examined.
- Encouraging customers to make sure that they receive a receipt from each sale, or having the sale process dependent upon the scanning or identifying of the item – thus recording the sale at the correct price.
- Having each employee sign onto cash registers to process transactions allowing transactions to be tracked back to a particular employee.
- Reporting on credit card numbers that receive refund credits to highlight cards that have had numerous refunds credited to it.
- Inspect all sensitive devices for tampering on a daily basis.
- Educate staff to recognize signs of tampering or fraud.
- Perform cashier shadowing as a measure to prevent such Point of Sale Fraud.
ACFE Article – https://brisbaneacfe.org/library/occupational-fraud/point-of-sale-fraud-stealing-cash-recipts/
Companeo Guide – http://www.companeo.co.uk/epos/guide/point-of-sale-fraud
Mohlenhoff & Uhl, 2013. Occupational Fraud. [Accessed: 01-07-2016] Available from: http://mdd.com/forensic-accounting-articles/occupational-fraud-abuse/