Reflections inspired by International Fraud Awareness Week on what organizations can do to protect themselves from policy abuse.

International Fraud Awareness Week came to a close in late November, but it is imperative that organizations and consumers both take into consideration how they can better protect themselves from fraud year round.

Fraud can be executed in a variety of ways including asset misappropriation, corruption and financial statement fraud. Another common, often overlooked, method of fraud is through retail policy abuse. According to a recent study, 78% of retailers have seen an increase in promotion abuse in the past year.

Digging into Policy Abuse Fraud

Policy abuse fraud appears in several different ways. Examples include:

  • Return abuse — when one consumer returns items that are not eligible for a return
  • Promotion abuse —when consumers use multiple accounts to take advantage of promotions
  • Items not received abuse —when a customer falsifies a report claiming theft or incorrect delivery

One of the most important aspects to note is not all policy abuse stems from fraudsters. Sometimes even loyal, well-intentioned customers intentionally or unintentionally take advantage of promotion codes and unclear return policies. So what can you do about these claims? Again, not everyone who files an “item not received” claim is a fraudster. Even worse, if you don’t believe the well-intentioned, honest customer, they may not return to your store or accuse your business of theft. The double-edged sword is that businesses offer flexible policies to attract customers, but they also need strategies to address growth in policy abuse.

However, friendly or not, it is up to a business to protect themselves and their bottom lines from fraudsters. Many organizations struggle to take accountability of policy abuse within their organizations, which makes it more challenging to create cohesive, organizational strategies. To shed light on how this issue affects the retail industry, in a collaborative study, Forter and PYMNTS recently calculated losses to policy abuse totaled more than $89 billion for US retailers with more than $100 million in revenue.

As we head into the holiday season, it provides the ideal time for retailers to think about how they can address this ‘friendly fraud,’ or fraud that can seem accidental.

Luckily, with the right technology, businesses can identify serial abusers in real-time. That makes it possible to adjust policies in-the-moment. For example, a repeat returner may be given the opportunity to purchase items as ‘final sale,’ and someone who has submitted multiple “item not received” claims may be required to sign for delivery.

The solution to policy starts with understanding the types and magnitude of abuse a business faces, and then using technology and process to systematically reduce losses. It is possible to be friendly to customers, but less susceptible to fraud.