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Fraud in the Retail Industry on the Rise

Organized Crime Gains a Foothold in Retail Fraud

On October 6, 2011, the Retail Industry Leaders Association (RILA) released the results of the 2011 Crime Trends and Leading Practices Survey, a comprehensive look at the past year’s trends in crimes against retailers from the perspective of the country’s industry leaders. The eye-opening results indicate just how pervasive a practice retail theft has become; how social media has been used to facilitate theft efforts; and how retailers are turning to the same social media to track possible offenders.

The RILA Survey was launched in December 2008 in an effort to measure the correlation between criminal activity and the economic downturn among the nation’s leading retailers. RILA has continued to monitor crime trends, conducting follow-up surveys in May 2009, January 2010 and August 2010. In August 2010, the survey was expanded to solicit feedback from retailers regarding effective criminal risk mitigation tools as part of an industry-wide collaborative effort to combat retail crime.

The FBI estimates that retailers lose $30 billion to theft each year. One reason is the explosion in organized retail crime. Organized retail crime involves criminals stealing merchandise who turn around and sell it.  Society is affected because thieves never paid sales tax when they take items from the store, and they pocket that sales tax when they return the stolen merchandise for full refunds. Consumers end up bearing the financial brunt, because “it comes back to [them] in the form of higher prices,” according to Joseph LaRocca, the National Retail Federation’s Senior Adviser of Asset Protection.

Survey participants reported the most significant increases in shoplifting and pharmacy theft. More than half of respondents reported an increase in the frequency with which organized rings committed shoplifting and forty-one percent (41%) saw an increase in shoplifting by individuals acting alone. Sixty-four percent (64%) of respondents reported an increase in theft of pharmaceutical products.

Survey participants were asked to report measured or perceived changes in crimes perpetrated against retailers over the past year and to share leading practices for minimizing business risks. Reflective of RILA’s membership, respondents represented all retail segments: building/garden equipment, clothing/accessories, food/beverage, furniture/electronics/appliances, general merchandise, motor vehicles/parts, sporting goods/hobby /books/music and miscellaneous. Respondents represent the largest retailers in the country, with nine having sales volume exceeding $25 billion. A majority of the respondents (11 of 34) are general merchandise retailers.

Within most criminal offense categories, a majority of retailers experienced no change in the frequency with which organized crime groups targeted them. However, some criminal activity appears to be on the rise. More than fifty percent of participating retailers (60%) reported an increase in the frequency with which organized rings committed shoplifting. Additionally, many respondents reported increases in the frequency with which organized rings committed online theft/fraud (44%) and gift card fraud (38%).

In addition to the categories of crimes identified above, retailers reported significant increases in the frequency with which organized crime rings committed the following offenses:

  • theft of AC units for copper
  • grab and runs
  • strong arm robberies, particularly with pepper spray
  • Organized crimes (ORC) subjects’ affiliation with gang activity

Over the past year, respondents have seen ORC rings use new methods, tactics, devices, tools, and the same methods as in years past but with greater frequency in order to perpetrate crimes against retailers. The top ten methods used include:

  • iPhone applications that allow instant upload to online seller accounts
  • fake credit card authorization codes at point of sale
  • duplicate receipts
  • skimming devices
  • walk-outs using side exit/fire doors
  • diamond jewelry switch outs with fake diamonds
  • better communication devices, more organized
  •  "distractions" created by multiple perpetrators
  •  fire door drilling (burglaries)

Respondents identified the following social networking sites as providing the most useful information in tracking possible retail crime: (1) Facebook; (2) Twitter; (3) LinkedIn; (4) Craig’s List; (5) Myspace; (6) Google; (7) Foursquare; (8) Pipl; (9) Carnivore Lite; (10) YouTube; and (11) Flickr

Facebook has been a huge success; in some operations the subjects have provided intelligence with respect to their next move and retail location they are targeting by posting future planned activities. Investigators use Facebook as “view only” and no contact is made with subject.

The increase in instances of retail fraud and expansion to social media reflects the underlying lack of ethics in society. Fraudsters believe they won’t get caught and even if they do, somehow they were justified in committing the crime, perhaps to foster the redistribution of wealth although that is not the result. Instead, greed and the pursuit of self-interest is the motivating factor for organized crime in the retail industry as it is in other forms of criminal behavior.

Blog posted by Steven Mintz, aka Ethics Sage, on October 28, 2011

 

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