By Danni Zhang, Regina Frei, P.K. Senyo, Steffen Bayer, Enrico Gerding, Gary Wills and Adrian Beck

The growth of online retailing has exceeded expectations over the last few years. This has resulted in high product return rates, which retailers are struggling with due to complex and costly returns processing, logistics, and financial implications. Additionally, online returns come with increased opportunities for returns fraud. During the pandemic, new types of returns fraud have emerged and returns fraud rates have increased across all channels. Based on a series of semi-structured interviews with retailers and retail experts, we investigate factors that enable fraudulent returns from consumers' and retailers’ perspectives and outline strategies for retailers to combat product returns fraud in a multichannel environment, leading to a framework for retail fraud. We contribute critical insights to research and practices on understanding and addressing a growing problem that has economic, social and environmental implications.

Journal of retailing and consumer services, Vol.70, 2023. 103145

By The National Retail Federation

Retail crime, violence and theft continue to impact the retail industry at unprecedented levels. The effects of these criminal acts are not isolated to large national brands or large metropolitan cities. Daily media reports show that no business is immune, and these issues touch retailers of all segments, sizes and locations across the United States. The National Retail Federation’s National Retail Security Survey, now in its 32nd year, surveys loss prevention (LP) and asset protection (AP) professionals throughout the retail industry to capture data about risks, threats and vulnerabilities from the previous fiscal year, as well their forward-looking priorities. The study also asks about retailers’ loss prevention and asset protection programs. For the second year in a row, the study was conducted in partnership with the Loss Prevention Research Council. Shrink or shrinkage is the measurement of losses calculated by a retailer during a specific period of time, categorized across various means of retail loss. This year’s study found that the average shrink rate in FY 2022 increased to 1.6%, up from 1.4% in FY 2021 and in line with shrink rates seen in 2020 and 2019. When taken as a percentage of total retail sales in 2022, that shrink represents $112.1 billion in losses, up from $93.9 billion in 2021. While retail shrink encompasses many types of loss, it is primarily driven by theft, including organized retail crime (ORC). Theft – both internal and external – accounts for nearly two-thirds (65%) of retailers’ shrink. However, for some sectors, theft can represent more than 70% of overall shrink. While theft has an undeniable impact on retailer margins and profitability, retailers are highly concerned about the heightened levels of violence and threat of violence associated with theft and crime. Retailers’ top priority remains providing a safe workplace for associates and a safe shopping experience for customers. Eighty-eight percent of retailers report that shoplifters (overall) are somewhat more or much more aggressive and violent compared with one year ago. And those that specifically track the number of violent shoplifting incidents reported that they saw their number of shoplifting events involving violence increase by over one-third (35%) on average.  ORC, which is one of many types of retail theft, is another area where retailers are seeing higher levels of violence. Last year, 81% of respondents reported that ORC offenders had grown more violent. Compounding that this year, more than two-thirds (67%) of respondents said that they were seeing even more violence and aggression from ORC perpetrators compared with a year ago. Of course, not all crime occurs in person; retailers also reported increases in areas such as ecommerce fraud or phone scams to solicit gift cards or cash. While less common, sizeable minorities reported increases in delivery fraud; stolen goods being sold on third-party sites; return fraud; and loyalty fraud and abuse. As a result of this increasingly alarming crime landscape, retailers continue to make investments in personnel, budgets, technology and other resources to prevent theft and fraud. They also are partnering with law enforcement at federal, state and local levels. Despite these ongoing efforts, many retailers have been forced to take more drastic action, including reducing operating hours in some locations (45%), reducing/altering the availability of products in stores (30%), or even closing some locations (28%). In 2022, NRF successfully advocated Congress to pass the bipartisan INFORM Consumers Act as part of the omnibus spending package, which was signed into law in January 2023. Now in effect, the measure will help bring transparency to online marketplaces by requiring them to verify the identities of high-volume third-party sellers. Doing so will help curb the fencing of stolen merchandise and address the sale of counterfeit goods. Market transparency alone will not stop ORC, which is why NRF strongly supports the Combating Organized Retail Crime Act (H.R. 895/S. 140). The bipartisan legislation has been introduced in both the House and Senate and continues to gain co-sponsors. In addition to efforts in Congress, NRF has worked closely with federal agencies, state lawmakers, local law enforcement and news media across the country to draw attention to ORC. The effort has been successful, with at least 34 states passing ORC laws, as NRF continues to urge additional states to update the definition of ORC and adopt sufficient criminal penalties. 

Washington, DC: National Retail Federation, 2023. 24p  

By Shane D. Johnson and  Manja Nikolovska

Objectives Routine activity theory suggests that levels of crime are affected by peoples’ activity patterns. Here, we examine if, through their impact on people’s on- and off-line activities, COVID-19 restriction affected fraud committed on- and off-line during the pandemic. Our expectation was that levels of online offending would closely follow changes to mobility and online activity—with crime increasing as restrictions were imposed (and online activity increased) and declining as they were relaxed. For doorstep fraud, which has a different opportunity structure, our expectation was that the reverse would be true. Method COVID-19 restrictions systematically disrupted people’s activity patterns, creating quasi-experimental conditions well-suited to testing the effects of “interventions” on crime. We exploit those conditions using ARIMA time series models and UK data for online shopping fraud, hacking, doorstep fraud, online sales, and mobility to test hypotheses. Doorstep fraud is modelled as a non-equivalent dependent variable, allowing us to test whether findings were selective and in line with theoretical expectations. Results After controlling for other factors, levels of crime committed online were positively associated with monthly variation in online activities and negatively associated with monthly variation in mobility. In contrast, and as expected, monthly variation in doorstep fraud was positively associated with changes in mobility. Conclusions We find evidence consistent with routine activity theory, suggesting that disruptions to people’s daily activity patterns afect levels of crime committed both on- and off-line. The theoretical implications of the findings, and the need to develop a better evidence base about what works to reduce online crime, are discussed. 

Journal of Quantitative Criminology, 2022.

By Amber Evans, Strategy & Insight Manager | Fernanda Reynoso-Serna, Analyst | Freya Smith, Analyst | Dr Ellie Brown, Head of Strategy | Sophie Davis

Most people are more worried about being affected by online fraud than other crimes, such as knife crime, burglary and sexual offences, according to a new large-scale survey – which also highlights the emotional impact of being an online fraud victim. The research, funded by the Dawes Trust, was based on a nationally representative sample of over 3,313 adults across England and Wales as part of a survey conducted by data organisation WALR. The vast majority of those polled, 92%, said online fraud was a very big or quite big problem in the UK. When asked what crimes they were most worried about being affected by, 55% said online fraud, 44% burglary and 47% knife crime. The poll also found that younger people (aged 18-34) were most likely to be affected by online fraud, with 32% reporting having been a victim in the last twelve months compared to 16% of over-35s. However, half of those questioned believed the elderly were most at risk. Of those who had been victims of online fraud: 20% said their physical health had suffered, 32% reported a psychological impact, 42% were affected financially, 47% experienced an emotional impact, including feeling embarrassed, angry or ashamed. 23% of all victims said they had experienced anxiety, 12% experienced disturbed sleep and 11% experienced depression as a result of the online fraud. The survey also shows that just over half of victims reported the fraud to either the police or Action Fraud. Victims were more likely to contact their bank (41%) than to go to the police (32%) or Action Fraud (28%), the UK’s national fraud reporting centre.

London: Crest Advisory, 2023. 32p.

By Michael Levi and Russell G Smith

This report seeks to draw out the common characteristics of frauds associated with pandemics, and to identify any risks unique to pandemics and financial crises, beginning with the Spanish flu pandemic of 1918, as the closest to COVID-19 in the modern era. It summarises the general influence of the internet or remote intrusions on contemporary frauds and allied corporate/ organised crimes against individuals, businesses and government, using plausibly reliable data from Australia and the United Kingdom as indicative of more general trends. The report identifies some novel crime types and methodologies arising during the COVID-19 pandemic of 2020 that were not seen in previous pandemics. These changes may result from public health measures taken in response to COVID-19, the current state of technologies and the activities of law enforcement and regulatory guardians. The report notes that many frauds occur whatever the state of the economy, but that some specific frauds occur during pandemics, especially online fraud. Similarly, some previously occurring frauds are revealed by economic crises, while frauds arising from and causing insolvencies are stimulated by economic crises. The report concludes with a discussion of the policy implications for prevention, resilience and for private and public policing and criminal justice in Australia. It stresses the need for plans for future pandemics and economic crises to include provisions for better early monitoring and control of fraud and procurement corruption. Research Report no. 19.

Canberra: Australian Institute of Criminology, 2021. 74p.

By Marianne Junger*, Victoria Wang, Marleen Schlömer

This study analyses 300 cases of fraudulent activities against Dutch businesses, 100 from each of the following three categories: CEO-fraud, fraudulent contract, and ghost invoice. We examine crime scripts, key characteristics of targeted businesses, and the relationship between input criminal effort and output financial benefit. Results indicate that whilst all CEO-frauds are conducted online, most of the fraudulent contracts and ghost invoices are undertaken via offline means. Both Routine Activity Theory and Rational Choice Model are evidenced-fraudsters clearly take the business size and seasonality into account, and the input criminal effort and output criminal benefit are positively correlated. Having vigilant employees is evidenced as the most effective way of fraud prevention, both online and offline.

Crime Science 9(1): 1–15. 2020.

By: Catherine Emami, Russell G Smith and Penny Jorna

Online fraud includes dating or romance scams, deceptive sales of products and services, dishonest investment schemes, lottery or inheritance scams, working from home scams or lottery fraud involving false prize draws or sweepstakes. These frauds are costly not only in their financial impact on business and government, but also because of the detrimental impact they have on victims. To gain a better understanding of online consumer fraud, the Australian Institute of Criminology worked with the Australian Competition and Consumer Commission to compare a matched sample of victims and non-victims. This study aimed to identify and quantify the factors that make some individuals more vulnerable to consumer fraud than others. It was found that greater familiarity with online activities resulted in a reduced likelihood of victimization and that victims were more likely to have used money wire transfers and electronic funds transfers to send money in response to scam invitations than other forms of payment. These findings support the development of targeted awareness-raising campaigns focusing on the online behaviour most likely to lead to fraud victimization. It offers policymakers and consumer affairs organisations opportunities to better target fraud prevention and education initiatives.

Research Report no. 16. Canberra: Australian Institute of Criminology, 2019. 98p.

By Benoit Leclerc and Elena Morgenthaler

The rise of the internet or, more specifically, of services offered and conducted online has led to a dramatic rise in frauds and scams. This study is a systematic review of the literature on the use of crime script analysis in the field of fraud facilitated by the internet to identify stages of the crime commission process across different forms of fraud and examine ways to disrupt those crimes. The scripts for different forms of fraud shared three common elements: communicating with the victim, recruiting enablers, and using money mules. These common elements suggest possible prevention measures. Future applications of crime scripts in the field of fraud and financial crime more broadly are discussed.

Trends & issues in crime and criminal justice no. 680.

Canberra: Australian Institute of Criminology. 2023. 28p.

By: Christopher k. Huhn

From the thesis: "This thesis addresses the problems of rapidly rising cyber-enabled fraud and concomitant money laundering by focusing on romance scam victims who evolve into willing partners in money laundering schemes, known as 'witting money mules.' This thesis explores how and why individuals become money mules after victimization in online romance scams. The thesis employs a grounded theory approach and investigates data from over 134,000 historical text messages between three offenders and 22 victims, as well as three participant interviews with romance scam victims. The data resulted in a grounded theory that a romantically lonely victim who persistently engages online with an offender that strategically repeats scheme-relevant premises in the guise of a romantic partner can result in the victim acceding to the offender's exploitative requests and the eventual decision to co-offend. This theory also explains how a person can simultaneously be a victim and offender and why they would intentionally choose to help the romance scammer launder money. The literature and data similarly support a suggested definition for 'grooming' in the context of romance scams. As a whole, this thesis provides insight into romance scams and money mules as a strategic pivot point that, if disrupted, can simultaneously impact a criminal organization's ability to profit from romance scams and launder the proceeds of cyber-enabled fraud."

Monterey, CA: Naval Postgraduate School (U.S.). Center for Homeland Defense and Security, 2023. 182p.

By Richard Walton, Sophia Falkner and Benjamin Barnard

Research by Policy Exchange finds that fraud and error during the COVID-19 crisis will cost the UK Government in the region of £4.6 billion. The lower bound for the cost of fraud in this crisis is £1.3 billion and the upper bound is £7.9 billion, in light of total projected expenditure of £154.3 billion by the Government (excluding additional expenditure announced in the 8th July 2020 Economic Update). The true value may be closer to the upper bound, due to the higher than usual levels of fraud that normally accompany disaster management.

London: Policy Exchange, 2020. 78p.

By Petter Gottschalk and Lars Gunnesdal.

Lack of Detection, Investigation and Conviction Compared to Social Security Fraud . Examines the magnitude, causes of, and reactions to white-collar crime, based on the theories and research of those who have uncovered various forms of white-collar crime. It argues that the offenders who are convicted represent only ‘the tip of the iceberg’ of a much greater problem: because white-collar crime is forced to compete with other kinds of financial crime like social security fraud for police resources and so receives less attention and fewer investigations. Gottschalk and Gunnesdal also offer insights into estimation techniques for the shadow economy, in an attempt to comprehend the size of the problem. Holding broad appeal for academics, practitioners in public administration, and government agencies, this innovative study serves as a timely starting point for examining the lack of investigation, detection, and conviction of powerful white-collar criminals.

Palgrave Macmillan. (2018 ) 151p.