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Online auction has grown significantly every year that online shopping website has been available. As an example Ebay.com is one of the popular acution websites where users can get products for low price. But Before bidding for a product, both seller and buyers should consider some aspects. Fraud might be conducted by customer or by sellers. Some time consumers may send fake checks or fake account details to the sellers. But most of the fraud cases are conducted by sellers. According to the statistics of National Internet Fraud Watch Information centre, most of the internet frauds are based on online fraud, which consist of 45% of the total online frauds reported in year 2005.

In online auctions, buyers compete to grab desired products for low price. But before going to bid, we should consider that sellers play some tricks to lure the buyers.
I. Bid shielding: Bid shielding is one of the ways to mislead the real bidders. Fake bidders starts bidding with very high price and they drop from the bidding at last minute. The real bidder who bid for low price would win the bid and he needs to pay for it. All this is just to mislead the real buyer’s concentration to their products.
II. Shilling: In shilling, sellers arrange fake IDs and start bidding as buyers. The real bidders lure to the particular product and they bid it for little bit high amount than previous. In this way sellers get more benefit.
III. Hidden shipping costs and handling fee: Sellers hide the real shipping cost and handling fee. By the time buyers get the product, they might need to pay more than they expected.
IV. Failure to deliver: Sometimes buyer will never get the product even after he/she paid for it. This is an old type of cheating method.
V. Damage and loss claims: This type of frauds might be from buyer’s side. Buyer tries to claim new product or refund by reporting the seller that they never got products or they got damaged product. Sometimes seller cannot prove the delivery of product.

Below are some prevention methods for the e-auction fraud:

Escrow Services
Escrow Services are intended to ensure security by acting as a middle-man in transactions where the two parties do not trust each other. Rather than sending money or goods directly to the other party, the buyers send their money to the escrow service, which will holds them until the buyers receives the purchased item and then the escrow service will sends the money to the sellers. If either party fail to deliver their part of the deal, the money will be held at the escrow service and eventually returned to the buyer.

Insurance Policy
Which is the insurance service that offers by the auction websites in order to protect both buyers’ and sellers’ losses in the fraud case occur. For example, eBay offers insurance underwritten by Lloyd’s of London at no cost to eBay users.

Appraisal Service
Appraisers use a variety of methods to appraise items, including expert assessment of authenticity and condition and reviewing what comparable items have sold for in the marketplace in recent months. An appraised value is usually accurate at the time of appraisal but may change over time as an item becomes more or less popular in the marketplace.

Verification System
One way of confirming the identity and evaluating the condition of an item is through verification. With verification, neutral third parties will evaluate and identify an item through a variety of means. For example, some collectors have their item “DNA tagged” for identification purposes. This provides a way of tracking an item if it changes ownership in the future.

Feedback forum
Which is the feedback system allows registered buyers and sellers to build up their online trading reputations. It provides users with the ability to comment on their experiences with other individual

Reference:
http://www.ecommerce-digest.com/internet-fraud-report.html
http://www.ecommerce-journal.com/articles/beware_of_e_auctions
http://www.fbi.gov/majcases/fraud/internetschemes.htm
http://www.crimcheck.com/background-check-news/whats-internet-auction-fraud-and-how-do-i-prevent-it http://wps.prenhall.com/wps/media/objects/260/267260/online_appendices/Turban-Appendix2A.pdf
http://en.wikipedia.org/wiki/Internet_escrow