Employee-Driven Retail Fraud Continues Despite Fraud Deterrence Measures

Despite increasingly stringent fraud deterrence measures, fraudulent activity in retail operations such as stores and restaurants continues to pose a significant problem, with the retail industry estimating a loss of nearly $3.2 billion to fraud in 2014.

“Technological improvements and greater oversight have made it more challenging for fraudsters to steal cash and inventory from retail establishments,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware  Valley.  “But the incidence of fraud persists in the retail world because of the sheer number of opportunities to commit fraud and the never-ending determination and creativity of fraudsters to circumvent anti-fraud controls.”

This post will examine some of the most common retail fraud schemes carried out by employees and offer recommendations that can reduce the success of those schemes.

Cash Register Schemes:

The simplest of the cash register schemes is the outright theft of cash from the till, said Anderson, a forensic accountant who also is a Certified Fraud Examiner in Philadelphia.  This fraud is easily combated by reconciling the cash in the register to recorded sales.  Anderson said some retailers — fast food restaurants, for example — perform reconciliations several times a day.

Other cash register schemes include those in which an employee “short-rings” or “no rings” a sale — records a lower amount than the actual sale or records a $0 sale to open the register.  The employee then pockets the difference between the actual sale and what was rung up either at the time of the sale or later when no one is looking, explained Anderson, a forensic accounting expert in Philadelphia who recommends that every organization adhere to a comprehensive fraud deterrence program developed by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.

Dishonest bartenders run a similar scheme in which they serve a number of drinks to a customer, but ring up only one or two of them, Anderson said.  What usually happens in these cases is that the bartender receives an inflated tip from the customer in return for undercharging the number of drinks.

Retailers have been fighting cash register schemes in a variety of ways, said Anderson, a forensic accounting expert in Philadelphia who has conducted numerous fraud investigations.  The first is the use of an electronic cash register and the requirement that each purchase be scanned into the register.  Similarly, Anderson said, restaurants require the wait staff to enter every customer order into the system to facilitate meal preparation.  These measures prevent employees from ringing up purchases for less than the actual sale amount.

Many bars have installed electronic systems that measure the amount of alcohol poured from each bottle.  At the end of the shift, management can reconcile the number of pours with sales to verify that the pours are being properly rung, Anderson explained.

Inventory Schemes

Inventory schemes involve the outright theft of inventory, as well as tag switching, according to Anderson, a forensic accounting expert in Philadelphia.  Anderson said tag switching occurs when an employee works with an accomplice who switches the price tag on an item with that of a less expensive item, or the employee pretends to scan the more expensive item but instead scans an inexpensive item twice.  The more expensive item is either sold to a third party (with the co-conspirators pocketing the profit) or is returned to the store by the accomplice for a refund, explained Anderson, who also is a Certified Fraud Examiner in Philadelphia.

Retailers have been using security tags on inventory for years to prevent outright theft by both employees and customers, said Anderson, a forensic accountant whose fraud investigations have uncovered fraudulent activity in many different types of businesses.  Retailers also employ several other methods to combat outright theft and tag switching.

Anderson said these include requiring a person who is returning an item to produce the original sales receipt; granting only store credit for those without sales receipts (making it harder for the fraudsters to convert the return into cash); and daily inventory tracking for expensive items (for example, tracking 50-inch televisions so that any discrepancy between inventory and sales is identified in the same day).  Retailers have also installed surveillance cameras to combat employee and customer fraud.

“The belief that ‘Big Brother is watching’ often is enough to significantly reduce the incidence of retail fraud, even if security personal doesn’t have time to actively review the tape recordings or if the cameras aren’t really recording anything,” said Anderson, whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.

To stem the loss of cash or inventory from your store or restaurant, it may be time to engage a forensic accountant to analyze your fraud controls and enact stronger fraud deterrence measures that will adequately protect your retail establishment and lessen the chances of theft.

If you require the services of a Certified Fraud Examiner in Philadelphia or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst and a Certified Fraud Examiner in Philadelphia.