While the holiday season traditionally provides a key revenue surge for retailers, it's also a prime time for fraud.

"The amount of fraud that we see is mind-boggling," says Kenneth Sayers, director of credit for PC Mall, an $853 million retailer in Torrance, Calif., that sells hardware, software and consumer electronics, primarily through mail order and Web sites.

In November, PC Mall stopped $1.1 million worth of fraudulent orders, bringing its yearly total to $10.8 million. Last year, PC Mall stopped $7.3 million in fraudulent orders.

The company's Web site is a prime target for criminals. While Internet orders account for 25% of PC Mall's business, they generate 90% of fraud attempts, he says.

Internet fraud is a widespread problem for retailers. Based on results of its annual survey of e-commerce crime, security company CyberSource estimates online crooks will make away with $1.6 billion of 2003 U.S. business-to-consumer e-commerce revenue.

However, the potential for fraud is but one caution during what so far looks to be a strong online holiday shopping season. Other issues, such as Web site performance, also are keeping retailers on edge. Still, Forrester Research predicts online sales from Thanksgiving to Christmas will grow by 42% over last year to $12.2 billion.

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Meanwhile, money lost to fraud threatened to wipe out the operational savings PC Mall achieves with its Web business. "The cost savings we were seeing from having an Internet site where customers can place orders without human intervention - we were losing those savings on the back end to fraud," Sayers says.

To combat this, PC Mall has honed over the last two years a three-tier system for catching fraudulent orders. Its first line of defense is a service from CyberSource that screens orders for suspicious entries, such as geographically mismatched customer information - an overseas IP address with a U.S. billing address, for example. The second and third tiers of PC Mall's strategy depend on in-house systems that compare incoming orders with historical fraudulent and legitimate transactions.

The retailer is on track to reduce its losses this year, Sayers says. Last year the company lost a little more than $1 million in fraudulent orders that it didn't catch in time. This year, the company has kept its losses to about $750,000.