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The cost of fraud to businesses is difficult to estimate because not all fraud and abuse is discovered, not all uncovered fraud is reported, and civil or criminal action is not always pursued. Per the Association of Fraud Examiners Study of 2010, they estimate the cost of fraud to business in 2009 at six percent of annual revenue for that year or about $418 million.

When fraud occurs everyone is victimized by high product costs and lower corporate profits. Credit card companies pass on the fraud losses to business as transaction fees and to consumers as higher interest rates. Approximately one in twenty company failures is attributed to fraud. Credit card fraud, by customers and by employees, is the fastest growing segment.

Credit Cards Fraud Prevention - Customers

  1. Do not accept credit cards without proof of identity, preferably a valid California driver's license.
  2.  Do not accept credit cards without checking a "Hot Sheet" or telephoning issuer for authorization. Most stolen/lost credit cards are reported to the issuer within 24 hours.
  3. Do not accept a card which has been altered, has expired, or is not yet valid.
  4. Make sure the signatures on the card and sales slip match. If the card is unsigned, check the signature on the driver's license.
  5. If you are suspicious, call for an authorization from the card issuer, indicate your suspicions and follow their instructions.

Fraud Prevention - Employees

  1. Always destroy carbons from credit card invoices or offer the carbon copies to the customer so that the card numbers and names do not fall into the wrong hands.
  2. Business owners, especially those with a high rate of employee turnover such as gas stations and restaurants, need to educate themselves on credit card "skimming."
  3. Be aware of the actions of your employees. Institute policies and procedures and train your employees. Let them know your expectations of job performance.

Refunds / Returns

  1. Have a written refund/return policy and post it for customers. Train employees to be familiar with the policy and uniformly enforce it.
  2. To minimize losses on fraudulent refunds, consider the following options:
    • Issue cash refunds only to persons who have a receipt and proper I.D. 
    • If there is no receipt, exchange only.
    • Always require valid identification and maintain a file for returns/refunds.

 Thefts / Shoplifting

Shoplifting is defined in the Penal Code as larceny and if convicted, means jail, a fine, or both. For 2009 it was estimated that $6.2 billion in merchandise was stolen from stores. That translates into losses of three to four percent of sales, enough to cancel out profits for many stores, especially small, independent stores. Statistics also show that one shopper in ten is a shoplifter.

  1. Do not display merchandise outside the store as doing so provides an easy opportunity for shoplifters to grab and run.
  2. Do not display expensive or "high end" items right inside the entrance to the store. This also provides an easy opportunity for shoplifters to grab and run.
  3. When thefts/shoplifting incidents occur, report to the Police Department as soon as possible. When reporting, be able to give a physical description and method and direction of travel of suspect.

Further Information


  • Business Fraud: Know It & Prevent It by James. E. Blanco
  • Fraud 101: Techniques and Strategies for Detection by Howard R. Davia
  • The Fraud Identification Handbook by George B. Allen
  • The Art of the Steal: How to Recognize and Prevent Fraud—America's #1 Crime by Frank W. Abagnale
  • Chuck Whitlock's Scam School by Charles R. Whitlock
  • How to Reduce Business Losses from Employee Theft and Customer Fraud by Alfred N. Weiner


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Last updated: 8/9/2012 8:18:03 AM