November 12, 2013

The sale of gift cards has caught fire in recent years. More than $110 billion in gift cards were purchased in the United States last year as they became the No. 1 requested holiday gift.

Gift cards are available at most businesses today, but their benefits to a business are not without problems. The chief among them is fraud.

If your business sells gift cards, here are some simple tips for minimizing your fraud exposure this holiday season and beyond:fm0114c

1. Train your employees. Start by providing instruction to all staff members about the possibility of gift card theft. This makes them alert to unusual activity and is a subtle way to demonstrate that you’re aware of the tactics.

2. Don’t issue gift cards for merchandise that is returned without a receipt. Many stores deal with the lack of receipts by giving gift cards instead of cash – a practice that has not escaped the notice of thieves.

In recent years, authorities report that fraud rings have been operating in multi-location stores by stealing high-dollar items from one location and returning them at another location – where there will be less likelihood of spotting stolen merchandise – in exchange for legitimate gift cards.

3. Monitor employee use of cards. Unscrupulous managers and front-line employees have been caught selling gift cards to customers, pocketing the activated card and handing the buyer an identical card with zero value. Some employees see this as justifiable, possibly rationalizing that they are supplementing what they see as low wages.

4. Limit card value. In the past, some stores have allowed customers to buy cards worth up to $10,000. The higher the value you allow, the greater your exposure to fraud. You can minimize your risk by setting a limit of $500 per card.

5. Require approval for large purchases. Whether selling one high-dollar card or a large group of low-value cards, require cashiers to get management approval when the purchase total is over a specified amount.

6. Limit access to numbers on gift cards. Thieves have been known to pick unactivated cards off display racks, copy down the card numbers and then put them back. Then, they continually check the balance of the card online or by phone until they find it has been activated. At that point they quickly spend the balance online, and the bona fide cardholder ends up with a zero balance.

Solve this by selling cards that are packaged so that the numbers are not visible, or by using cards with numbers obscured by scratch-off material. Also, advise cashiers and customers to watch for cards with scratched off numbers.

7. Sell gift cards from your customer service window. It may be less convenient than selling cards displayed near the cash registers, but if you limit the sale of gift cards to the customer service window, you’ll be able to maintain better control.

Gaining control of gift card fraud will help your bottom line.

This article was originally posted on November 12, 2013 and the information may no longer be current. For questions, please contact GRF CPAs & Advisors at