Criminal element clipping those grocery coupons, too
Chicago — Those ''cents off'' coupons on everything from jam to cereal which you clip and cash are some of the most effective tools grocery manufacturers have for recruiting new customers and keeping the old.
Because of this, coupon production is being stepped up to include more products in a wider array of newspapers, magazines, and mailings. The total number of coupons in annual circulation, now more than 90 billion, is expected to double within the next few years. Though many argue that manufacturers would go broke if every coupon were actually redeemed, only about 4 percent are. The percentage is not expected to change with the increased number in circulation.
But manufacturers do admit to a growing concern about one major drawback as they step up production: Not everyone who cashes in cents-off coupons also buys the product. The industry's umbrella term is ''misredemption.'' Officials peg its reach into the $1 billion-a-year coupon-cashing business at from 10 to 40 percent of the total.
But it's not the individual shopper occasionally cashing in a coupon without buying the goods that most concerns the industry. Manufacturer attention is focused on a small group of middlemen, often operating in organized rings, who are bent on large-scale fraud. After stealing, counterfeiting, or buying stacks of coupons at bargain rates from collectors, these rings work in cahoots with existing retailers or sometimes set up fictitious stores of their own. The object is to wring full-coupon refunds plus the usual handling charges out of food manufacturers for items never purchased.
While no one has a good handle on the extent of this lucrative, illegal activity, the determination to crack down hard on it is relatively recent.
''For a long time the industry was willing to put up with a certain margin of error and didn't feel it was that large a problem, but the stakes are getting bigger,'' observes George Simko, vice-president of a New York advertising firm and head of an Audit Bureau of Circulation study of irregularities in coupon redemption. ''In the final analysis, the more that kind of practice is allowed to go on, the less effective it makes couponing in general. . . . The consumer is the loser.''
The US Postal Service, which has been cooperating with food manufacturers in their enforcement efforts under its broad mail fraud statutes, currently has 67 coupon fraud cases under investigation. During 1981, that government agency succeeded in getting indictments on 28 coupon defrauders and convictions (some spilling over from previous indictments) of 51.
In one of the more noteworthy cases, five San Francisco area residents were convicted on charges of having negotiated with as many as 675 retailers to mail illegally obtained coupons to industry clearinghouses for redemption and splitting the returns. Searches of the homes of those charged turned up more than 2 million coupons worth some $500,000.
Postal fraud inspectors also launched an experimental ''sting'' operation a few years ago by offering on one day in three Eastern newspapers a 25-cent coupon for a fictitious detergent called ''Breen.'' Some 2,000 stores in 42 states tried to redeem the coupons. That case resulted in a whopping 142 convictions over a three-year period.
The Federal Bureau of Investigation is currently probing yet another coupon fraud scheme in the Chicago metropolitan area which may involve extensive theft and counterfeiting of newspaper coupons by an organized ring. FBI agents have received cooperation and tips both from the Chicago Tribune (which hired a private investigator to probe the scheme until it found that its own security governing access to coupons was not at fault) and from the A. C. Nielsen Clearing House, a major coupon clearance and redemption center in Clinton, Iowa.
Indeed, much of the policing of coupon fraud is done by manufacturers themselves or the redemption centers many of them hire to help with the coupon part of their operations. With the help of computers keeping tabs on the usual volume of coupons from each retail store, coupon issuers can track any unusual upswings in volume and follow up. Paul Kelly, spokesman for the Grocery Manufacturers Association (GMA), says coupons are also checked for normal handling. No wear and tear or uniform cutting by a paper cutter may trigger further suspicions. Also, the serial numbers which some manufacturers put on coupons can serve as a tip-off if, for instance, numbers in a bundle run in sequence or numbers are repeated.
If fraud is suspected, the grocer is usually asked to submit proofs of purchase to back up the coupons before he is paid.
''Often at that stage, if the coupons were handled improperly, the retailer will drop the case and forget it,'' says Mr. Kelly. ''A lot depends on how alert the manufacturer is. . . . The real problem is that as fast as manufacturers devise new ways to get at this, someone figures out a way to crack it. It's a constant struggle.''
Still, just by watching closely for any irregularities, manufacturers and their agents have stopped a good deal of potential coupon fraud before it reached the prosecution stage.
Another way to keep a tighter rein on coupon fraud is improved security over distribution and disposal of newspapers carrying coupons by the publishers. The Audit Bureau of Circulation's coupon verification service issues guidelines with just that aim in mind. Mr. Simko, who serves on the bureau's board and insists that ''the coupon must be looked at as money in and of itself,'' says that more care by newspapers, which account for three-fourths of all coupons in circulation, can severely limit and possibly eliminate coupon fraud.
But don't suggest to GMA's Kelly that elimination of coupons could solve the problem in shorter order and give all consumers a price break at the same time.
''The effect on the price would be one-half of 1 percent - so small you'd never find it,'' he counters. ''And the volume of goods sold would go down while fixed costs stayed the same. So unit costs (in time) would go up.''