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Ker-Ching! Ker-Ching! Cash Register Fraud

An old-fashioned cash register.
I am the oldest criminal in history.
I have acted in my present capacity for many thousands of years.
I have been trusted with millions of dollars.
I have lost a great deal of this money.
I have constantly held temptation before those who have come in contact with me.
I have placed a burden upon the strong, and broken down the weak.
I have caused the downfall of many honest and ambitious young people.
I have ruined many business men who deserved success.
I have betrayed the trust of those who have depended upon me.
I am a thing of the past, a dead issue.
I am a failure.
I am the Open Cash Drawer.

— John Patterson, founding president of the National Cash Register Company

The Cash Drawer

From the middle of the 19th Century, it was common to see the cash drawer prominently situated in retail businesses all over the world. It was the purchase area or 'Point of Sale' (PoS). This humble device had dividers in order to separate individual notes and coins1, but was incredibly inefficient and prone to theft. Dishonest workers would frequently supplement their income while supervisors were distracted and business owners had immense difficulty reconciling their takings with the day's trade. As business volumes grew, more efficient systems were invented, but crooked staff developed ingenious ways to combat the new anti-fraud measures.

The Cash Register

In 1879, James Ritty from Dayton, Ohio, USA invented his 'Incorruptible Cashier'. This crude device was based upon a mechanism he had seen that counted the revolutions of the propeller shaft on an ocean liner and is widely accepted as the first true cash register. Rather than simply a depository for currency, takings were registered on the machine as each sale was transacted, allowing a total to be read at the end of trade. Being a mechanical device, it had significant limitations, but fear of the new technology 'focussed' workers in the early stages of its introduction.

We were obliged to be away from the store most of the time so we employed a superintendent. At the end of three years, although we had sold annually about $50,000 worth of goods on which there was a large margin, we found ourselves worse off than nothing. We were in debt, and we could not account for it, because we lost nothing by bad debt and no goods had been stolen. But one day I found several bread tickets lying around loose, and discovered that our oldest clerk was favouring his friends by selling below the regular prices. Another day I noticed a certain credit customer buying groceries. At night, on looking over the blotter, I found that the clerk had forgotten to make any entry of it.

This set me to thinking that the goods might often go out of the store in this way — without our ever getting a cent for them. One day we received a circular from someone in Dayton Ohio, advertising a machine which recorded money and sales in retail stores. The price was $100. We telegraphed for two of them, and when we saw them we were astonished at the cost. They were made mostly of wood, had no cash drawer, and were very crude. But we put them in the store, and, in spite of their deficiencies, at the end of twelve months we cleared $6,000.
— John Patterson

Improvements were made over the years, but it was not until the introduction of electronic cash registers2 in the early 1970s that fraud could be seriously addressed.

The Tricks

Modern-day EPoS systems, such as those seen in supermarkets, have very sophisticated 'checks and balances' to combat fraud. These have developed and continue to do so in response to new 'work-arounds'. Some of the developments seem impersonal to shoppers, especially those that delay purchases and require additional information, but they are introduced for the benefit of stores and consumers alike. This entry will not cover the latest deceptions; many are not yet widely known to the retail industry and are awaiting the introduction of prevention methods. Instead, it will highlight some of the historical frauds and the ways in which they have been tackled.

The No-Sale

Most PoS systems require some kind of 'no-sale'. There are times when the cash drawer needs to be accessed without a sale being registered. Early cash registers simply had a drawer that could be slid open and closed by hand. The cash often proved a temptation and could easily be 'lifted' when the coast was clear. This problem was resolved by fitting a bell, producing the familiar 'ker-ching' sound as the drawer was opened and attracting the attention of the store owner or supervisor. This did not prevent theft when no-one was in earshot, however, so the more modern electronic machines overcame this deficiency by using, understandably, an electronically-operated drawer. This remained mechanically closed until the end of the sale transaction, when an electrical impulse from the printed circuit board (PCB) triggered an electro-mechanical solenoid that would release the drawer. The opening of the drawer outside of a sale was registered as a no-sale on the journal roll3 and had to be accounted for by the cashier, preventing fraudulent use. The electronically-activated drawer had one big drawback, however: it would not operate in a power cut, so a mechanical link had to be fitted to enable release of the drawer.

It was not long before cashiers discovered the release mechanism and began using it, bypassing the record on the journal roll. Cash drawers were modified so that the mechanical link could only be operated by key and this key was held by the store owner or supervisor.

The Open Drawer

Undeterred, cashiers soon realised that the solution was to leave the drawer slightly ajar at the end of a transaction. This enabled various types of fraud to take place. Cash could simply be stolen, but this left discrepancies at the end of the trading day between cash registered and the amount stolen and pointed a finger of suspicion toward the cashier. Instead, customers buying single items were targeted. Since the adding feature on the cash register was not required to calculate the sale total, money for the single item was taken from the customer, put in the drawer to make things appear normal and then removed when the customer had left. The cashier knew the value to be removed and this could be done throughout the day as many times as required. Clever cashiers would even enter the value of the sale on the cash register keyboard, without a following action key, adding to the appearance of normality. This amount could simply be cancelled, by pressing the 'clear' key, much as one would do if an incorrect value had been entered on a calculator. The solution was an open drawer sensor that sounded an alarm if the drawer was left open longer than a predetermined period, say 15 seconds. The sensor also linked to the keyboard, preventing any entry being made and, if one was attempted, sounding an error alarm.

The Refund

Since the open-drawer trick was no longer available, a new method for skimming cash was devised. This took the form of an erroneous refund. Sales throughout the day were registered as normal, but when opportunity arose, a reverse sale or refund could be performed on the cash register. The value of the refund would be pocketed, rather than returned to the customer as would happen in a genuine case. Goods to 'refund' were readily available in the store and the transaction needed little explanation since customers returned goods all the time. The solution was to put refunds and corrections under 'management control'. A supervisor key was required to access these features on the cash register and entailed calling a supervisor or manager to verify the transaction. As an additional precaution, to guard against errant managers, many stores requested that the customer verify the refund by signature, along with an address for identification.

The Under-Ring

As frauds were continually eliminated, opportunities became fewer and fewer. Under-registration, or under-ringing as it was commonly known, became the new fraud of choice. Customers in a hurry were the ones that were specifically targeted, since they were less likely to notice the deception. Items were deliberately registered at a value below the marked price. A pound became the common choice, so an item for 4.99 would be registered at 3.99, but with the correct value taken from the customer. Rushed customers rarely looked at the cash register display and often left without taking a receipt. If the deception was noticed, it could simply be explained as a 'genuine' error and with apologies given to the customer. The ruse was continued throughout the day until a tidy sum for removal had accumulated. This amount was normally stolen during 'cashing up', a procedure carried out at the end of the trading day, when the cash is reconciled against the takings report from the cash register. If the cash register report total was 100, that was the amount of cash returned to the owners. Anything over that, resulting from the under-ringing, was kept by the cashier. Compulsory Cash Declaration (CCD) was developed to prevent this abuse. Under the new CCD system, cashiers had to count the cash in the drawer and declare it on the cash register before the total report told them how much cash should be in the drawer. Since the declared amount was recorded, this prevented 'adjustments' being made.

The Manager's Till

During the 1980s, a national chain of UK public houses was concerned about the performance of one of its outlets. Gross profit margins were below what were expected and investigations were carried out. All the reports from the cash registers were inspected, but appeared normal. Test shoppers4 were employed to visit the bar and view the transactions taking place. They reported that nothing unusual was observed. Perturbed, the head office hired private investigators who installed covert closed-circuit television (CCTV) to watch over the trading day. After weeks of observation they reported that they had not seen anything that would indicate theft or dishonesty.

'We have watched every transaction, by every member of staff on each of the four tills,' they announced. 'Four tills?' shouted an enraged director, 'We've only got three in that pub.'

The cash register manufacturers were approached for a resolution and soon the public house chain installed replacement cash registers painted bright red in all of its outlets. This particular model could only be purchased by the chain themselves, foiling yet another fraud.

The Customer Fraud

Not content with cashiers and managers supplementing their income, customers tried a trick of their own. It was common to hear cries of 'I gave you a twenty!' at the sales desk. Dishonest consumers had worked out that if they furnished the cashier with a 10 note for payment of the goods, they could argue that it was in fact 20 when the change had been given and the cash drawer closed. This led to many disputes, but with many larger stores preferring to adopt a 'the customer is always right' approach, it was easy pickings for the corrupt shopper. Compulsory Change Computation (CCC) was soon introduced. This involved entering the amount received from the customer (the amount tendered) into the cash register, where the correct change to be received was calculated. Because this process involved physically looking at the note and recording its value before depositing it in the cash drawer, the number of disputes significantly reduced. In many stores 'noteclips' were seen attached to the front of the cash register and used as a temporary storage area for the payment until change had been handed to the customer. As an additional safety measure, cashiers were trained to verbally acknowledge the value to the customer or a colleague. This situation was not perfect, however, as recounted by Peter Kay, comedian, attempting to buy a bag of chips.

Cashier: Twenty pound goin' in Marion! Twenty goin' in love!
Customer: Eh, MOUTH! There's two drug dealers eyeing me up for me change out 'ere.

1 This was the 'till', a term incorrectly but commonly used in the UK to describe the cash register.
2 Also known as Electronic Point of Sale (EPoS).
3 A continuous roll of paper on which is printed by the cash register, details of each transaction, dated, timed and numbered.
4 An independent person employed to enter a retail outlet and report on their shopping experience to the business owners, usually to ensure corporate standards and values are maintained.

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Entry Data
Entry ID: A11689167 (Edited)

Edited by:
echomikeromeo


Date: 14   June   2006


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Referenced Guide Entries
Supermarkets
Ohio, USA


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