How to identify return fraud in 2024

There are many types of return fraud. However, they can be first broken down into two broad categories, internal and external. 

Here’s a helpful analogy. 

When magicians perform an illusion, they often need an accomplice. Sometimes the accomplice is a confederate, that is a person working for the magician who knows what they need to do to help sell the illusion. This is akin to internal theft, where the person performing the return is part of the plan to defraud the business. 

Other times, the accomplice is just a member of the audience who doesn’t know what is going on. While they still help the magician fool the audience, they too are being fooled. This is more like external theft, where the person committing return fraud either fools the person performing the refund, or the return policy is so undefined or lax that no fooling is even necessary. 

Here are 12 types of return fraud.

• Bricking: An electronic device that sells for $500 can have >$100 in “component value.” Some fraudsters will purchase an electronic device, open up the shell, remove the valuable parts to resell online, and then return the useless empty “brick.”
• Credit card return fraud: Someone purchases items with a stolen credit card only to return them later for a cash refund, often to a retailer that allows returns without a receipt.
• Defective item return: In this case, someone tries to fraudulently return a broken item. They first purchase a new version of the broken product. Then, they replace the item in the box with their old broken one. That way they now have a working product again without needing to buy it.
• Empty box: Some people will purchase an item and then rewrap the package, possibly weighted with something cheap inside to make it feel right. The clerk is then fooled into thinking that it is unopened merchandise.
• Free renting: Similar to the more well-known wardrobing discussed below, some people will purchase expensive tools, finish a specific repair or renovation, and then return them.
• Open boxing: Some stores offer deep discounts for purchasing an open box. In this case, a person manufactures the open box discount by buying the item, opening it, and then returning it. They then return the next day to make the open box purchase.
• Price arbitrage: When two retailers sell the same product for different prices, and the higher price retailer doesn’t require receipts to return items, then a person can buy at the lower price and afterwards return it for the higher one.
• Price switching fraud: In this case, someone buys an item for a lower price based on the switched price tag. Then, they return the item without a receipt for the listed price. 
• Receipt fraud: In this case, the person uses the same receipt for multiple returns or returns an item with a fraudulent receipt. This might be to return a stolen item, or it might be to buy something at a deep discount and then return it for the full price.
• Seller sabotage: To corner the market for a period, an unscrupulous rival may purchase out a competitor’s inventory only to return all of the items once they have sold all of their merchandise as well. This is more common online, but it can occur in brick-and-mortar retail as well.
• Stolen merchandise return: Similar to using a stolen credit card, some fraudsters take advantage of no receipt return policies to return items they previously shoplifted.
• Wardrobing: Some people will purchase clothing, wear it once or twice, and then return it. This is commonly the case for expensive one-time purchases, like prom or wedding attire.