Paper Trails: Tracking Coupon Fraudsters
Coupons work. They are far and away the most effective incentive to get people to try new restaurants or new services, according to a Publishers Clearing House survey. And direct mail marketing and coupons have had a revival in recent years, despite an overall industry shift to eCommerce. In a 2021 consumer survey from AdAge, 68 percent of respondents said they use the coupons they get in the mail, and many consumers actively search for coupons. But wherever shoppers hunt for savings, fraudsters hunt for profits.
In June 2021, police in Montgomery County, Texas, announced that they had broken up an alleged coupon fraud ring. They arrested and charged three people with theft, connected 87 individuals across 23 U.S. states to the scheme, and seized $40,000 worth of items. The group allegedly scammed millions of dollars out of retailers by selling coupons that were fraudulently made to resemble legitimate manufacturer coupons.
A couple from Virginia Beach, Virginia, pled guilty in April 2021 to running a counterfeit coupon fraud scheme that cost retailers and manufacturers more than $31 million in losses, according to the FBI. For a three-year period, Lori Ann Talens used her graphic design skills to produce a variety of counterfeit coupons that were “virtually indistinguishable from authentic coupons and were often created with inflated values, far in excess of what an authentic coupon would offer, in order to receive items from retail for free or for a greatly reduced price,” according to a U.S. Department of Justice press release. Talens then marketed and sold her coupons to groups of coupon-clipping shoppers through social media sites. Talens was sentenced to 12 years in prison.
If you can make it, someone can fake it.
Coupon fraud is a major concern for 90 percent of consumer-packaged goods manufacturers, and coupon misuse is relatively common. According to an early 2021 survey by Inmar Intelligence, 52 percent of U.S. shoppers said they have tried to use an expired coupon, 48 percent have tried to use a coupon for products that do not apply, and 63 percent tried to apply multiple offers when purchasing an item.
This level of fraud adds up, one misapplied discount at a time. According to a 2021 report from the Center on Shadow Economics, a three-year combined total of counterfeit coupon losses reached $165.7 million. Other estimates reach far higher—upwards of $300 million per year.
“Clearly, there is a ripple effect—the manufacturers tend to be the most direct victims, and retail stores are also victims,” says Bud Miller, CPP, executive director of the Coupon Information Center (CIC), a not-for-profit association dedicated to fighting coupon fraud. “In particular, the counterfeiters really are not interested in getting the product itself but converting the counterfeit coupons into cash or cash equivalents. The most common way they do that is steal large amounts of products from the stores using the counterfeits—so that’s one part of the theft—and then they will either return the products for full face value if there’s not a good control in place (and therefore get the value of the discount credited to them), or they will resell the product on the Internet or flea markets, and engage in unfair competition against legitimate retailers.
“You can see how retailers are hit up twice in this at least: by not getting paid for counterfeits and for unfair competition,” he adds. Small businesses get hit particularly hard by coupon fraud, as they often do not have the financial cushion to manage a loss or the resources to detect fraud quickly.
Additionally, counterfeiters continue to keep pace with retailers and manufacturers, constantly devising coupons that skirt protections and trick employees and systems. Some are obviously too good to be true—such as recent “$20 off any $40 of groceries” or “save $9 on any one box of Hefty trash bags” counterfeit coupons recorded by the CIC in its database—but others are more subtle and harder to spot, closely mimicking valid coupons.
“If you can make it, someone can fake it,” Miller says.
Scammers are infinitely creative, and they can run any number of fraud attempts, says David Speights, chief data scientist at Appriss Retail. Purchase-related scams can include anything as simple as copying a coupon by taking a photo of it on a smartphone and then scanning that coupon any number of times to get the discount more than once. Fraudsters can try to use a coupon without buying the intended product, essentially getting a discount on any product. They can layer or manipulate coupons to add up to so much money that the register owes the customer a refund. Or a fraudster could swap out price tags on items, ringing up an expensive item at a cheaper item’s cost, then return it at the original high price for a refund.
Many fraudsters make their money at the returns counter, Speights says, returning discounted items for full price; using “buy one get one free” deals and then returning the paid item while keeping the free one; or taking advantage of retailer cash programs. For example, if a retailer offers a $10 “cash” coupon for every $100 spent, scammers can amass a team of fraudsters to purchase high-cost items to rack up retailer cash coupons and then return the product, keeping the coupons.
Similar to cybercrime, it may not be violent, but it could for sure cripple your business.
“It’s a matter of how aggressive the bad guys are, but this can be a top three, four, or five ranked scam that retailers have acted upon—it’s not a small thing,” Speights says. “If they have the right controls in place, though, they can shut a lot of this down.”
Despite the prevalence of coupon fraud, it is often overshadowed by other more visible, potentially violent threats such as shoplifting or organized retail crime, says Karl Perman, president of CIP Corps. and chair of the ASIS Investigations Community steering committee. Despite the understated nature of coupon-based crime—which is unlikely to result in an altercation with retail personnel—the fraud costs add up.
“Similar to cybercrime, it may not be violent, but it could for sure cripple your business,” Perman adds.
Getting the attention and resources that coupon fraud requires is a matter of metrics. “What gets measured gets managed. Otherwise, it’s just a free-for-all,” he says. Measuring coupon fraud rates and costs is challenging, especially because it can take weeks to discover a fraudulent coupon has been used. Digital tools and services are working to change that, however.
At the CIC, Miller and his team collect counterfeit coupons and add them to a freely accessible database for retailers. Employees can use a free smartphone app to scan the barcode on a suspect coupon and verify if it is a reported or known counterfeit within seconds. If the coupon is unknown, the CIC can help verify its veracity with the manufacturer. Compared to the traditional process of detecting fraudulent coupons at the point of coupon invoicing and reconciliation, which can take weeks, these services and tools can cut the life of a fraudulent coupon down significantly.
“Since counterfeiters are always creating new counterfeits, it can take us a while to catch up to them—it’s a bit of an arms race,” Miller says. “But with the app, we can shorten that time.”
Manufacturers, retailers, and restaurants can also improve the fraud mitigation measures on their coupons, including using single-use coupons or enhancing printed coupon security options such as using holographic logos or images. For retailer cash incentive programs, tracking customer patterns—such as if one customer repeatedly takes advantage of return services—can help flag potential fraudsters faster. Some retailers are shifting more to digital coupons, such as QR codes or coupon codes that are more effectively tracked through software platforms, but Speights warns that criminals will use automation or bots to trawl for coupon codes, testing them on thousands of sites until they find ones that work, then selling the information or using the codes to purchase product cheaply and then resell or return it for a higher cost.
The hard pivot to online retail during the COVID-19 pandemic pushed many organizations into eCommerce before they had unified platforms in place, so many retailers launched website sales almost as a whole separate business, Speights says.
“It became hard to connect the dots,” he adds. “The good thing is: a lot of retailers have loyalty programs with names and addresses, they are good at keeping track of order numbers online, and as they flow into the store we can point back at the original order. What we’ve done is try to tie all that mess together into a cohesive unit. For us, an omnichannel environment looks like one environment…. The speed at which retailers connect the dots will dictate how fast they’re able to fight off this kind of fraud trend.”