Leading the Charge Against Credit Card Crime

David Ray – Grant Thornton, LLP

Betty and Jim were a husband and wife who ran a small retail business. Last year they began receiving requests from Visa and MasterCard for backup information on credit card payments that had been transacted at their business. The first few were requests were smaller amounts of $50 to $100 but over the next several days and weeks the requests for information were more sizeable and grew to $500 amounts and then to $1000. One of the most distressing things about the requests was that, each time they went to their records to pull the back up documentation, it was missing. The matter suddenly came to a head when the father of one of their young employees called to tell them that he had discovered that his son had been using his credit card without his authorization. When Betty and Jim looked closer at the demands from the credit card companies they realized that all of the transactions had taken place when the son was on shift. They confronted him and he refused to respond to their questions and quit on the spot. They were eventually held responsible for over $60,000 in charges against several credit cards and the loss resulted in their decision to close the business because all of their annual profits had been lost.

Every year Canadian consumers and businesses lose about $150 million to credit card fraud. These losses may be caused by employees, fraud artists or organized crime. In the case above the young employee had been using his father’s credit card and had been taking cash out of the till. At the end of the day the receipts balanced because the credit card transaction balanced against the cash taken out of the till. He tried smaller amounts first and, once he found that it worked, he became more bold and took out larger amounts. Betty and Jim had wondered about the increased amount of credit card sales and the reduction in cash and had resolved to look into it. The young fellow was also using the yellow copy of the credit card receipt from other customers to enter a manual or forced transaction after the customer left the premises. Eventually the customers started getting their credit card bills, disputed the extra charges and this resulted in the credit card companies sending out the request for back up. The young employee would submit the yellow copies of the manual transactions at the end of his shift so that everything would balance but, because Betty and Jim did not secure them, he would go into their office a day or two later when they weren’t around and remove them so that there would be no evidence of the forged signature.

There are some precautions that businesses can take to avoid these losses. First and foremost, check references for any new staff you hire. Many people who commit fraud against their employer are simply terminated without the police becoming involved. Make sure you’re not taking on someone else’s problem. Some of the spot audit things you can do is to balance the number of slips, forced transactions and repeated card use transactions to ensure that fraudulent slips have not been removed. You should also ask staff to put the customer’s credit card on a manual transaction machine and cause an imprint on the white and yellow copies of the slips. This proves that the card was present at the time of the transaction and is excellent evidence if a customer later disputes the transaction. Another cover up method sometimes used by fraudsters is to go through old slips and find one with the same amount as the fraud and slip it into a new bundle so you should quickly check the slips to ensure that the date and time sequence are accurate and that they are not from a different shift or date. Lastly, lock up the hard copies of the transaction slips so that no one else has access to them.

One of the most important things that a business can do, however, is to investigate discrepancies. Many small frauds turn into large frauds because the business owner had a suspicion but, for any one of a number of reasons, decided not to follow up and find out what happened.

David Ray is Senior Practice Leader Security and Investigations with Grant Thornton LLP, a full service accounting and consulting firm with 47 offices across Canada.