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How To Minimize Customer Fraud Risk

Posted by Protiviti KnowledgeLeader on Thu, Mar 22, 2018 @ 04:41 PM

How To Minimize Customer Fraud RiskFraud is the intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right. In the business community, the ultimate goal of fraud is to gain money. There are numerous frauds within the business world.

Failure to manage fraud risk can have the following impacts:

  • Loss of or failure to attain consumer and customer trust
  • Underutilization of website or online payment process due to consumers’ and customers’ lack of trust
  • Penalties for violations of laws and regulations
  • Damage to brand and reputation if fraud occurs
  • Decreased stock price if fraud occurs
  • Crisis management costs if fraud occurs

Credit card fraud is one of the many areas where customer fraud can happen. Here are a few things organization’s can do to minimize credit-card related customer fraud risk.

Implement Effective Billing Practices

  • Ensure that the merchant has implemented appropriate billing practices in order to mitigate unnecessary charge backs.
  • Ensure that the company name that is printed on the customer’s billing statement is accurate, clear and concise. For example, ABC Web Design Products is preferable to ABC Enterprises. Many charge backs are initiated because the customer cannot remember or understand a particular charge.
  • Ensure that a customer service number is printed on the customer’s billing statement. Customers are more likely to call and question a transaction directly, especially when there is easily obtainable contact information, rather than file a chargeback.
  • Respond immediately to all requests from credit card issuers to produce proof of transactions, such as sales receipts and billing invoices from shipping companies. Failure to do so results in an automatic chargeback. Many companies automatically assume that a request will be followed by a chargeback, but this is not always the case. A valid customer may have lost the receipt and need a new copy. In addition, seeing the reproduced sales receipt may jog the individual’s memory.

Monitor and Record Customer Shopping Habits

One of the most effective methods to identify fraudulent customers is to collect and analyze the shopping habits of a merchant’s typical customers. The data collected provides a positive file with which to check transactions against in order to identify potential instances of fraud.

  • Track the sources of physical and website visitors. Valuable marketing and risk management information can be obtained from the web addresses that are used to reach the site.
  • Collect and analyze internet customer “click through” patterns. These patterns tell where the individuals travel to and from within the website and provide useful data that can be used for marketing and fraud risk screening.
  • Track purchase patterns of registered customers. This type of data can provide a valuable foundation for targeting fraudulent transactions.

Develop Appropriate Risk Management Infrastructure

Fraud prevention is a specialized field that requires individuals that are properly trained to monitor and investigate potential instances of fraud.

  • Establish a formal fraud control function. A specialized fraud control group can provide the focus that businesses need to prevent and detect fraud activity.
  • Track fraud control performance. Ensure and improve the effectiveness of the fraud control group by monitoring the following:
  • Gross fraud as a percentage of sales
  • Fraud recoveries as a percentage of gross fraud
  • Timeliness in reviewing and resolving suspicious transactions
  • Occurrences of complaints from legitimate customers

Here are some KnowledgeLeader tools that provide more information about mitigating fraud risk.

Customer Fraud Risk Key Performance Indicators (KPIs)

Code of Business Conduct and Ethical Guidelines Policy

Fraud Prevention and Detection Audit Work Program

Topics: fraud, ethics, risk assessment, strategic risk, performance management/measurement, KL Tools, customer satisfaction

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