Most business owners are vulnerable to ongoing employee theft. One of the most widely used methods is through a credit card system. As your employees get rich, you become subject to fines, penalties, and the loss of revenue and credit card-acceptance privileges.

Over the past seven years, our company has been asked to help hundreds of merchants with this problem including many owners in the self-storage industry. Weve learned education is the first step.

Internal Fraud

The truth is hard to face, but its critical to accept the possibility a trusted employee may cause serious damage to your business. The U.S. Chamber of Commerce reports 75 percent of employees steal, and 35 percent do so on more than one occasion. In every type of card acceptance whether it is retail, telephone or Internetstaff members have significant opportunities to steal. This includes personal information (identity theft) as well as money.

We recently surveyed a broad sample of 250 merchants (see chart for results). Their answers were disconcerting if not surprising. What they suggest is merchant education is very low when it comes to employee theft.

Loss of Credit Card Acceptance Privileges

As rates of disputes, credits and charge-backs increase so does your likelihood of getting hit with penalties and fines. When a merchant experiences a significant number of these, it causes the cost of acceptance to increase substantially. In fact, under federal laws and MasterCard and Visa regulations, you could be terminated.

The rules for acceptable chargeback ratios have tightened. If you have a chargeback ratio of 1 percent for a rolling-forward period of four months, or if your rate exceeds certain thresholds for a one-month period, you are subject to monitoring protocols and termination.

The most dangerous situation is if you and your company are placed on the terminated merchant file (TMF). If this occurs, your company and whoever signed the application may face an effective lifetime ban on credit card acceptance. You simply cannot afford to let this happen!

Plan of Action

It is the responsibility of every owner to have a monitoring system to identify increasing rates of charge-backs and credits as well as pattern changes indicating fraud. Further policies, protocols and procedures must be present to combat these issues. If you are threatened with a loss of card-accepting privilegeseither due to compliance violations or fraudyou must take steps to remediate the issues with measurable outcomes.

The credit card companies are not your friends; they will terminate you rapidly and possibly with no warning, as they have done to hundreds of thousands of other merchants. This can put an end to your business. Education and awareness are your keys to avoiding employee theft and credit card woes. 

Ross Federgreen is a co-founder of CSRSI, which provides an integrated approach to the analysis, design, implementation, deployment and management of electronic transaction services and systems. Since 1999, the company has helped more than 350 public and private institutions reduce the cost of acquiring money and minimize liability exposure related to payment transactions and customer data. For more information, call 866.462.7774, ext. 23; e-mail [email protected]; visit www.csrsi.com.