Double Dipping

What It Is, Main Types, + How to Prevent

Subscribe to our newsletter!

Please fill out the form below:

Click on the bookmark to view chapters of this webpage
Click on the bookmark to view chapters of this webpage

When we think of fraud, the first thing that comes to mind is entirely fraudulent activity—fraudsters generate income from an avenue they have no legitimate affiliation with. But what happens when fraudsters double dip on legitimate products and services to claim more than what they are owed or entitled to?

To answer this, we’ll look at what double dipping is, the most common types of double dipping scams, and how risk teams can prevent double dipping.

State of Fraud and AML Report Volume 2

What is Double Dipping in Fraud?

Double dipping in fraud is the process of illicitly receiving income from two different sources at the same time. This can be done in a number of ways, including manipulating employment or unemployment systems, insurance policies or products, or by committing chargeback fraud schemes.

In all cases of double dipping fraud, at least one of the methods of receiving income is illegitimate because the receiver is not legitimately entitled to receive funds from the second source.

The fact is, double dipping itself is not necessarily illegal—it depends on if one of the incomes is being drawn illegally. Let’s look at an example to illustrate.

In a chargeback scam, the customer double dips by receiving a refund while still keeping the ‘returned’ item. But customers can legitimately return items and still keep the item—if the retailer or shipping company instructs the customer to do so. But any attempt to intentionally receive a refund without returning the item is chargeback fraud.

The problem for retailers is that it’s challenging to definitely prove whether a customer intended to commit fraud or simply made a mistake. The customer can claim they forgot to return the item to the retailer or that it was sent (despite not being received by the retailer).

This gray area makes it a lot harder for risk professionals to definitively prove that an act was intentional double dipping or not. It also means that some customers aren’t even aware that what they are doing is fraud. This perceived gray area makes it a more commonly used form of fraud.

Is Double Dipping Illegal?

Yes, double dipping is illegal.

The reason double dipping fraud schemes are illegal is that they involve receiving money that is unmerited—and is only obtained through abusing (at least) one of the income sources. For example, it would be double dipping for an individual to make a claim at an insurance company where they had already received a payout from a different insurance company—as this would violate the terms of their policy.

While this behavior from customers is clearly an instance of fraud, many customers think they are simply exploiting a loophole in the company’s policies and slightly gaming the system to their advantage, but often fail to see that their actions constitute fraud.

On top of this, double dipping is something that can very easily be explained away as an accident—the customer has enough plausible deniability that they can claim they never intended to double dip. This makes it much harder for organizations—and law enforcement—to regulate and enforce.

Even unintentional forms of double dipping can have a major impact on organizations, leading to significant costs and even reputational damage. But targeted efforts performed by experienced fraudsters can be absolutely devastating.

Types of Double Dipping Scams to Watch For

Generally, double dipping means taking more than your fair share—this includes receiving benefits you don’t qualify for or knowingly swindling merchants through refunds and chargebacks.

This can actually be done in many different ways across various sectors of the economy. We’ll look at the main double dipping scams in detail below.

Employment Double Dipping

Employment double dipping, sometimes called moonlighting, involves receiving income from two sources illegitimately. This can be done in a few different ways—the fraudster could claim income from two jobs at the same time or claim an income while also claiming a pension or other retirement benefits.

It’s important to note that having two jobs is not necessarily illegal on its own—employment double dipping involves receiving income from two sources when the fraudster isn’t actually fully working both jobs. This can be due to divided attention, missed deadlines, and other failures to meet their job responsibilities.

In extreme cases, a completely falsified and non-existent employee—often referred to as a ghost employee—could be listed on the payroll system, claiming an income they are doing nothing for. In other cases, they could just be failing to meet the full obligations of their position.

How to Prevent Employment Double Dipping

Identifying employee double dipping can be extremely challenging, especially if someone within the payroll system is involved.

First and foremost, ensure employees are working their allotted time and meeting their objectives. If an employee is constantly struggling to perform what’s required of them, they may be working elsewhere while still claiming an income from your organization.

Check for employees that share a bank account, name, or address. It’s highly unlikely that employees share any of these details, and it would be quite easy to rule out the few instances that do exist—leaving the fraud for investigators to explore further.

Ensure the payroll system is managed effectively, controlling access and tracking all activity from users. Conduct internal audits regularly, but also perform external audits periodically to catch incidents that could involve those operating on the inside of the payroll system.

Simple Transaction Monitoring solutions can also identify duplicate payments for identical values. This may be less effective for larger teams with employees that earn the same wages, but smaller companies with smaller teams could benefit greatly from simple checks like these to catch duplicate payments.

Unemployment Double Dipping

Unemployment double dipping involves illegitimately claiming unemployment benefits and income. This can be done in a few ways—the fraudster can simply claim unemployment benefits without actually meeting the qualifications, or they can claim unemployment benefits while still receiving an income.

This can be done unintentionally, with the fraudster remaining on unemployment benefits when they’ve gone back to work. In more malicious attacks, they can intentionally be left—or put—on the payroll register to continue to receive unemployment income when they aren't entitled to.

Essentially, any attempt to abuse the unemployment system by receiving additional income could amount to unemployment double dipping.

How to Prevent Unemployment Double Dipping

The unemployment approval system should have very clear policies and procedures for team members to follow, including how team members get approved for unemployment benefits and how they get taken off this system when they no longer qualify.

Perform internal audits that review the unemployment roster and ensure that these are up-to-date and accurate. Transaction monitoring tools can also identify payments that stand out as abnormal—and could be a sign of unemployment double dipping. Look for payments that are being made to the same bank account, name, or address and other anomalies that stand out.

Insurance Claim Double Dipping

Insurance claim double dipping involves collecting benefits from two or more insurance companies for the same loss. In this scam, fraudsters make identical claims for the same incident at multiple insurance companies to increase their payout.

Insurance claim double dipping can happen in virtually any type of insurance, from real estate and property insurance to healthcare insurance. For example, in a Medicare double dipping scam, an individual would make multiple claims (with more than one company) for the same health coverage.

How to Prevent Insurance Claim Double Dipping

This starts with client onboarding—organizations need to make sure clients disclose any existing policies they have. Teams can’t just take their word for it though, organizations need to perform adequate due diligence to check if that ensured has any outstanding policies in force or applications still being processed. This will help reduce the opportunity for fraudsters to double dip on insurance claims in the first place.

The next check key checkpoint is at the point the insured makes the claim. Each insurance claim needs to be investigated for potential double dipping—screen for duplicate bank account numbers, names, and addresses to check for potential double dipping. It’s also essential to periodically audit policyholder’s accounts to check for inconsistencies or new information that could signal double dipping attempts.

Chargeback Fraud Double Dipping

Chargeback fraud double dipping involves a fraudster using a chargeback scam to receive both a refund and the item they purchased. In addition, the merchant has to pay the credit card company a chargeback fee. In the end, the merchant ends up losing the value of the item, the item itself, and the cost of the chargeback.

Unfortunately, chargeback double dipping has become a common practice with online shopping, as it’s accessible to fraudsters and easy to carry out. It doesn’t require criminals to be savvy and instead can be conducted by the average customer. In fact, some customers commit chargeback fraud without understanding that what they are doing is fraud—instead thinking they are simply gaming the company's system.

This is a serious problem for merchants, as it can cost them a lot of money and lead to reputational damage.

How to Prevent Chargeback Fraud Double Dipping

Preventing chargeback double dipping is extremely difficult for a few reasons, which are only compounded by online shopping methods.

First, it’s often difficult to conclude whether the customer received a shipped item. Second, it’s challenging to confirm product damages on items that were shipped online without having the item returned. Even if the item can be examined, it can be challenging to confirm whether the damage was caused during delivery—or by the buyer. Finally, merchants are motivated to give customers immediate refunds (before they can review the condition of the item) to keep customers happy and ensure they get good online reviews.

Conduct a quality assurance check on products before they are shipped out to customers so you can confidently refute false damage claims. Ensure the item was received by the customer using end-to-end tracking systems. Activity and event monitoring can be used to identify if a customer is continuously conducting these types of scams—and even to identify the legitimacy of the customer’s claims. It’s also essential that team members keep records of deliveries so that these chargeback claims can be disputed.

Prevent Double Dipping Fraud with Unit21

Protecting against double dipping starts with having the proper policies in place—customers need to be onboarded and proper customer due diligence needs to be conducted to understand the client and their existing products.

Perform both internal and external audits to check for instances of double dipping and make it harder for fraudsters to commit it successfully. Transaction and activity monitoring solutions are ideal for identifying double dipping—design rules to look for duplicate payments with the same values, bank account, address, or name. More broadly, look for anomalies that stand out as potential instances of double dipping fraud with true data monitoring that lets you analyze user behavior.

Schedule a demo today to learn how Unit21 can help you build a complete compliance and fraud prevention program.