Mikhail Ben Rabah, CFE , CIA, CRMA
Senior Government Auditing Manager
Head of the Evaluation Division
Control General of Public Departments
Presidency of the Government
A fraud scheme was recently uncovered in a Tunisian city’s largest hypermarket (also known as a supermarket) when a customer suspected an inflated receipt while paying for his items. By checking the store receipt provided by the cashier, he noticed that some item unit prices did not match the prices displayed on the shelves. He went back to the store and took pictures of the price tags of the corresponding items with his cellphone. Then, he called the store supervisor and asked for explanations as to the difference between the price tags and the prices charged on the receipt. Afterward, shoppers learned through the local press to whom the customer reported the facts that he was not given any relevant rationale about the price difference but was nevertheless reimbursed.
Local reporters wanted to dig deeper into the case and learned from store employees, who have chosen to remain anonymous, that the price tags of some items had not been removed and replaced following a price increase. Moreover, the reporters thought that the store’s senior management had found the perfect scapegoat: the label manager.
The case would have passed for an insignificant local news item if other similar incidents had not been reported in the few following days in the same chain stores. Attentive customers uncovered what seemed to be a fraud scheme perpetrated on a large scale and not an isolated case of employee negligence.
Unfortunately, neither the store’s management nor the competent regulating agencies investigated the case.
Such fraud schemes are hard to uncover for many reasons:
Customers often purchase a wide variety of products in hypermarkets and cannot estimate exactly the total amount of their purchases unless they are walking around in the store with a calculator and adding up the amount of items purchased. A slight variation in the total receipt is unlikely to be detected by the customer in a hurry to pay and leave.
Customers hardly ever remember all unit prices of the items they purchased and they rarely check their receipts.
People often think that well-known brands do not get involved in such con schemes and thereby make themselves exposed to severe reputational risk.
But how can management and the company learn from this fraud? Fraudulent prices displayed on shelves or catalogs can mislead customers and encourage them to buy products. Besides being a consumer fraud scheme, this deceptive business practice could be considered misleading advertising and an unfair competition practice.
How can such unethical business conduct be prevented or at least detected in a timely manner? Most anti-fraud professionals would say that a strong ethical culture, adequate internal controls, effective fraud management processes and board oversight, as well as an independent and skilled internal audit department, are the main drivers of preventing this kind of fraud from occurring.
Those are all true, but I would add that powerful consumer organizations could play a key role in deterring consumer fraud and corporate abuse. Consumer fraud schemes tend to be less prevalent in countries where consumer organizations are adequately empowered to engage in litigation, campaigning, lobbying or single-issue advocacy.
Furthermore, independent, professional and investigative journalism can actively uncover and deter consumer fraud schemes. Public disclosure of such cases with sufficient and relevant evidence could undermine the offending company’s reputation. And, this is what companies fear the most.