The Gift that Keeps on Giving: Gift Cards Scams

Typically, when we think of bribes, we often think of a transaction involving cash. However, in today’s digital economy, gift cards have become the newest financial tool impacted by fraud. The convenience of gift cards for consumers has also made it convenient for today’s fraudster. Gift cards are extremely transportable and can carry relatively high values. Anecdotal evidence suggests that gift cards rank as the second-most given gift by consumers in the United States. Ironically, Blockbuster Entertainment first introduced gift cards in 1995 in an effort to prevent counterfeit gift certificates from being used in Blockbuster stores. Fast-forward almost twenty years and gift card fraud is one of the latest areas hit hard by fraudulent transactions.

Many gift card scams are relatively straightforward. According to a New York Times article these schemes frequently involve young sales clerks and smaller amounts. How does this happen? Initially, cashiers process fake refunds of merchandise, and then use the refunded amount through their registers to electronically fill gift cards, which they ultimately steal. Another approach occurs when shoppers buy gift cards; cashiers issue blank cards to the customers and then divert the shoppers’ money onto cards for themselves. Other schemes are slightly more complex, as evidenced in the case of a 20-year-old worker at a Sears store in Milford, Connecticut, who was charged several years ago with manipulating the store’s computers to divert more than $35,000 onto gift cards that were fraudulently activated.

Organizations need to be aware of the dangers of gift card fraud. Quite naturally, small and medium-sized businesses are at risk, but gift card fraud is also common in large corporations and often involves collusion. For example, a recent Saks Fifth Avenue employee had allegedly been ringing up “returns” on items stolen from the store and crediting the amounts to electronic gift cards, which he then kept for himself. Kashien Mercer, age 23, allegedly charged up to $130,000 onto electronic gift cards back in 2009. Two weeks prior to Mercer’s arrest, two other Saks employees were arrested for charging $169,000 and $10,000 to electronic gift cards respectively.

In a much larger gift card scheme, two Evansville, Indiana women were sentenced to prison for their involvement in a Kentucky gift card scheme. According to the FBI indictment, between May 6, 2008, and June 20, 2008, Charice Curtis, age 36, and Kathinia Reynolds, age 37, incurred unauthorized charges of approximately $304,319.61 to purchase gift cards at three different Kroger grocery stores in Owensboro, Kentucky. Police found approximately $175,000 in gift cards during a search of Curtis’ home. Over $40,000 in gift cards was located at Reynolds’ home. Curtis and Reynolds were also charged with knowingly, and with intent to defraud, possessing and attempting to possess approximately 2,400 gift cards with a total value of $265,000.

According to the National Retail Security Survey, approximately 50% of gift card losses could be attributed to dishonest employees. These losses amount to approximately $15.5 billion annually. Gift cards can also be used as a vehicle for laundering bribes. Clients and potential clients are often enticed by gift cards which can carry significant values. According to Craig Greene, CPA, CFE, partner at the Chicago-based forensic accounting firm McGovern & Greene LLP, gift card fraud is definitely on the rise.

Greene stated, “…gift cards are extremely difficult to track. Organizations need to monitor and ensure that card distribution has happened and that the process is segregated.” Greene has extensive experience examining gift card fraud in both the retail and gaming industries. He commented, “In my experiences, I had seen human resources managers placed in charge of a corporate gift card program which was implemented to boost employee morale. Unfortunately, the gift cards were never distributed to the employees and a manager pocketed over $100,000 in value.”

In an effort to prevent theft, data mining programs are now used to monitor whether some employees are refunding more purchases than other employees, suggesting the existence of fraudulent retail gift card schemes. As gift cards continue to remain popular, it is important that organizations monitor these programs to prevent future fraudulent behavior.

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