New jewelry sales clerks would be alarmed by the “chunky, well-dressed woman” who police say stole $13,000 in merchandise from Musselman, Gordon, and Littman jewelers in Bloomsburg, Pa. The criminal’s modus operandi: phony credit cards.

According to the U.S. Secret Service, the federal agency that monitors and investigates currency-related crimes, there were 2,269 arrests for credit card fraud in fiscal year 1997. Financial losses from the crime, say MasterCard statisticians, were nearly $500 million. Retail jewelry stores, because of their high-value merchandise, are prime targets.

Selling jewelry is a “high-risk transaction,” says Vinny DeLuca, MasterCard’s vice president for fraud prevention. “Anything that is easy to sell on the street tends to be targeted in these crimes.”

In most major cities, the Secret Service maintains a credit card fraud squad. Cooperating with local police and postal inspectors, agents assigned to these special strike forces are routinely brought in for cases involving retail jewelry. “On a recent case, we executed a search warrant and found over 300 stolen credit cards in a Harlem, N.Y., apartment,” says Stephen Iannucci of the Secret Service’s New York field office.

In another case, an out-of-state company ordered a $5,800 watch from a New York jeweler over the phone. The credit card was phony. Now the jeweler wants the Secret Service’s credit card fraud squad to track down the watch. “Finding the watch and making an arrest can be difficult in these cases,” Iannucci says. “The best way to deal with credit card fraud is to prevent it before it happens.”

That means paying attention to the warning signs, says John J. Kennedy, president of the Jewelers Security Alliance (JSA). The industry group works with law-enforcement officials to protect jewelry retailers and manufacturers from crime.

“Retail jewelers would lose a lot of business if they were as suspicious as I am,” adds Iannucci. Being suspicious is part of his job. But you can take some precautions and implement procedures to protect your business without insulting your customers, he says. Here are nine ways to protect your store from credit card fraud without compromising your commitment to customer service.

1. Know your customers. The Jewelers Security Alliance divides credit card fraud into two main categories: fraud committed through telephone orders and crimes committed in-store. “In both cases, it’s good to know your customers,” says JSA’s Kennedy. “With a phone order, you’re often dealing with someone you don’t know who is asking you to ship $800 to $2,000 in merchandise to a phony address.”

Reports of organized telephone scams aimed at retail jewelers have been logged in New York, Texas, South Carolina, Indiana, Wisconsin, Wyoming, Nevada, Georgia, Illinois, Kentucky, Massachusetts, Ohio, and Oklahoma. In 1994, law-enforcement officers traced many calls to prisoners in state penitentiaries working with outside accomplices.

“You’re taking a big risk when you ship on a telephone order without knowing the caller,” says Kennedy. Banks will “charge back” phone-order sales that involve credit card fraud, he says. That means retailers lose their merchandise and don’t get paid.

2. Analyze shopping behavior. How can you tell if the person who walks into your store is a customer or a crook? You can’t by appearance alone, says Washington, D.C.-based Special Agent Jim Mackin of the Secret Service.

If you’re expecting a scruffy, tattoo-covered Hell’s Angel type, you may be in for a surprise. Crooks can be just as clean-cut and well-dressed as your best customers.

Some clues can be found in arrest patterns. “Most of the arrests we make for credit card fraud are people under 30,” explains Iannucci. “Often, we find women who are hired and dressed up by organized gangs so retailers wouldn’t suspect anything.”

Shopping behavior yields more clues than personal appearance does, advises Nels Peterson, a loss-prevention manager for Fred Meyer Jewelers in Portland, Ore., a major retail chain. “Jewelry employees know how people shop,” explains Peterson. “Does the merchandise fit the person? Does the person shop too quickly? Is the customer buying several engagement rings, or three watches worth thousands each? You know something is wrong.”

Also be concerned if a shopper appears to be picking items haphazardly, says Russ Ortiz, assistant vice president for credit at Elangy Corp., an Edison, N.J., retail chain.

Adds Peterson, “If something isn’t right, call the bank for verification. If necessary, tell the customer that the electronic approval system isn’t working so you’ll have to call it in.”

If you suspect there’s a problem with a transaction, you’re probably right, says Iannucci. If you’re suspicious about a purchaser, make a note of her appearance, her companions, and any vehicles used and ID presented. Then call the police.

3. Examine credit cards carefully. There are certain basic “checks” you can make quickly and easily to be sure your shopper is really a customer. A simple first step is make sure a male customer doesn’t have a female name on his credit card.

Check that the credit card account number has 16 digits, says MasterCard’s DeLuca. “The embossing should be clear and uniform in size,” he says. “Check the valid dates, check the signature against the one made in-store. All MasterCard account numbers start with the number 5, Visa numbers start with 4, and American Express with 3. If your MasterCard customer gives you a card that starts with 7, you have a fraudulent card.”

“We use an electronic printout of the magnetic strip information on a credit card and compare it to a manual imprint of the card,” says Peterson of Fred Meyer Jewelers. “We find that this information often doesn’t match on stolen cards.” Experts say that’s an excellent way to detect a stolen card.

The Secret Service recommends other ways to spot a stolen card:

• Examine the signature strip on the card. Criminals will often cover the real card owner’s signature with correction fluid or tape and substitute a phony signature on the new strip.

• Look for warping or bubbling. If the criminal melts off the original, raised characters, the surrounding plastic may be marred. If the card is warped or the hologram appears to have bubbles in it, someone may have tampered with the card.

• Make sure the raised numbers and letters are all printed in the same style. If some of the original numbers and letters have been altered, they may appear different from the newly imprinted ones.

• Look for “ghost” numbers or letters. Many times, criminals will change the numbers or name on a stolen card. To do this, they either melt or file off the original names and numbers. Both processes can leave faint imprints of the original characters.

4. Ask for multiple forms of ID. “Many fraudulent transactions begin when the shopper lists the current address on file for the credit card as a former address,” says Elangy’s Ortiz. “The person claims they just moved or they’re in the military and just got transferred and haven’t had a chance to notify anyone.” In these cases, ask for multiple forms of ID.

Be on the alert if a customer has only one piece of ID or only one credit card. “Crooks are not prepared to produce multiple forms of counterfeit ID in the name of the original card’s owner,” says Iannucci of the Secret Service. “We see a lot of counterfeit New York and New Jersey drivers’ licenses, but most often the bad guys have only one form of phony ID.”

Also ask for photo ID. “Of course, a fake photo can be used,” notes JSA’s Kennedy. “This is just one of the security checks that build a profile on the person you’re selling to.”

5. Monitor instant credit. When a customer comes into a retail jewelry store with a valid credit card and gets approved for the transaction, most retailers will end the credit review and make the sale. After all, according to JSA, the jeweler will get paid for the purchase without charge-backs even if it’s a fraudulent charge – provided proper procedures were followed.

One of the most common ways a retailer loses money is through instant credit programs, in which a shopper obtains a charge account or special credit card approved while in the store. “Some of our competitors boast that they can approve you for credit in five minutes,” says Ortiz. “Criminals are counting on that fast process.”

According to JSA’s security manual, “Instant credit programs have recently been subject to fraud schemes. These applicants appear to have satisfactory bank credit, and they apply for instant credit. Immediately, the credit is charged to the limit, often with duplicate purchases of large-ticket items.”

Even so, instant credit isn’t always a problem. “We actually have more flexibility to deny a transaction we think is fraudulent with our private-label card,” says Ortiz. “About 50 percent of credit card fraud can be prevented with a careful look at a credit application.”

6. If you’re suspicious, call in a Code 10. Encourage your staff to use good judgment and call the bank whenever fraud is suspected. Calling the bank with a “Code 10” – meaning a potential fraud case – gives the card issuer a chance to evaluate the application.

To detect possible credit card fraud, many banks use software called Falcon Retail, produced by HNC Software of San Diego. Others use similar software. Falcon Retail rates each transaction on a scale of 50 to 999 (999 meaning a likely case of fraud).

HNC marketing director Patsy Campbell says the software creates a computer profile of a fraudulent transaction. It then uses a scoring matrix based on common attributes of fraud to evaluate a credit application.

Key factors include the address of the user relative to the retail store and whether similar transactions have been conducted within the last five or 10 minutes. Did someone buy a $10,000 necklace in one jewelry store at 5:05 p.m. and another $10,000 necklace at a jewelry store in a neighboring town at 5:15 p.m.?

“We recommend that our bank clients not accept another credit card after the one presented is rejected, except where they know the customer and the card is just maxed out,” says Campbell.

Visa, meanwhile, has its own fraud-prevention software for in-house use. The credit card company uses the software to detect fraud in transactions presented by retailers.

7. Don’t rely exclusively on a scoring matrix. A scoring matrix such as Falcon Retail’s is just one tool in your arsenal against credit card fraud. “That’s not enough proof of ID and credit when it comes to selling high-value jewelry,” says Elangy’s Ortiz. “In-store personnel must use good judgment and look for unusual spending patterns, such as buying five expensive watches. Our losses have decreased because we don’t rely on a scoring matrix alone.”

You may be dealing with credit card fraud even if someone doesn’t score high on the fraud scale, says JSA’s Kennedy. “The crooks are coming up with new schemes all the time.”

Ortiz recalls one especially brazen ploy. “One of the ingenious thieves got the fax number of our credit department and faxed in a request for credit posing as a sales clerk at one our 127 stores,” she says. “We caught him because he gave us a phony store number for his stated location.”

8. Be especially vigilant in large stores. Large retail stores are particularly attractive to fraudulent credit card users, who feel less conspicuous in that setting, says the Secret Service’s Iannucci. Sales clerks may be juggling too many duties in the bigger stores and can’t spend the time necessary to check credit. Make sure you have enough staff to serve customers and check credit applications.

9. Train your staff to detect fraud. Your retail sales staff is your first line of defense against credit card fraud. Half the battle is getting clerks trained to spot the signs that something’s amiss. MasterCard, Visa, and American Express all offer training programs and educational materials for their retail customers.

With the banks’ knowledge of credit card fraud, the skills and counsel of law-enforcement officials, and your awareness of how customers shop, you have multiple resources available to detect foul play.