Wrestling with a million dollar baby - skimming

Dec. 27, 2011 | by D. B. "Libby" Libhart

The restaurant industry is rife with ways to lose profitability. Just when you think you have things buttoned up, a new twist comes along that can threaten your business and you may not even know about it. Last year the restaurant industry lost an estimated $200 million to a theft scheme called “skimming.” The cashier or server is equipped with a portable electronic device commonly known as a “skimmer” that can be easily be hidden in a pants pocket. When handling customer credit cards the employee swipes the card through the POS system to capture the sale and while still in possession of the customer’s card, swipes the card through the skimmer as well. The customer’s information contained on the magnetic stripe on the back of the card is captured in the device. The information is then typically sold or transferred to organized rings that produce counterfeit cards and rack up fraudulent charges.

With the latest incident it is now $201 million dollars in fraudulent charges. The US Secret Service arrested a 28 person ring for fraudulently skimming customer credit cards at high end steak houses such as The Capital Grille, Mortens, Smith and Wollensky, and The Bicycle Club in and around the New York Metro area. Servers targeted high credit limit blue, black and platinum credit cards. The cards were skimmed and customer information was forwarded to an organized crime ring. Fraudulent credit cards were produced and $1 million in purchases were made at high end stores such as Chanel, Jimmy Choo, and Cartier. The stolen goods were then sold on eBay for cash. The case received wide publicity for the significant amount of fraud in the high end restaurants. This however, is a fairly common occurrence in the world of fast food and fast casual restaurants, where the credit card is handed to a server or drive-thru cashier. The difference in the skimming operation is that high limit blue, black, or platinum credit cards are not the target, but rather the credit cards from your everyday customer, relying on more volume.

Organized rings recruit or plant employees that handle credit card transactions with the public. They are furnished with the portable skimmer and are compensated for every credit card they skim in the device. Its easy money for relatively little effort – and it’s enticing for a part time cashier or server making low wages. When the complaints come pouring in several months later, they usually are long gone. The ensuing investigations are arduous and time consuming taxing the resources of local law enforcement as well as the restaurant management staff.

Skimming customer credit cards presents a real problem for restaurant owners and retailers. The customer does not know their credit card information has been compromised until they get their monthly credit card statement. By the time credit card companies and the retailers and restaurants are notified that there might be a problem, large amounts of fraudulent charges have been made on many customer’s cards. The outrage from customers does not bode well for businesses who failed to protect them from crimes committed by their employees. Trust is eroded, reputations are tarnished, and credit card companies are not happy.

Retail and restaurant management training on the skimming fraud scheme is essential in slowing this crime trend. Credit card processers usually have skimming and other credit, debit and gift card fraud prevention training available to their clients. The retail or restaurant manager or owner must be aware of the crime, and put the mechanisms in place to properly screen employees, recognize the “red flags” of potential credit card skimming and other warning signs of fraud, and take the appropriate actions. It’s a crime of opportunity that can be prevented through education, training and proper supervision.

If you suspect that your location may have skimmed customer’s credit cards, consult with a loss prevention professional. They can expedite the investigation and free up your time and energy to run your business. Loss Prevention professionals have special expertise and can resolve fraudulent activity proficiently and make recommendations for crime mitigation and prevention. It will be well worth your business reputation.

Topics: Business Strategy and Profitability , Financial Management , Financing and capital improvements , Insurance / Risk Management , Loss Prevention , Operations Management

D. B. "Libby" Libhart / D.B. “Libby” Libhart has more than 30 years of experience in the loss prevention industry. He has provided security and safety leadership in retail settings such as department stores, drug stores and quick-service restaurants. Before launching his own company, LossBusters, Libby served as the Senior Director of U.S. Security and Safety for McDonald’s Corp. He entered the QSR industry with Taco Bell and subsequently YUM Brands.
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