On Crime & Security
After serving two years on an aircraft carrier during the Vietnam War, I served another two years on a tugboat at the U.S. Navy's nuclear submarine base in Holy Loch, Scotland.
One of my duties on the boat was to purchase supplies and equipment. As the tugboat's supply petty officer, I enjoyed something of a prince's life, much like the supply sergeant or supply officer character often portrayed in military comedies. Hung over my desk in the crew's compartment was a sign that read "Davis Delivers."
I had to deliver. Like the PT boat crew of the 1960's TV comedy "McHale's Navy," the tugboat crew was rough-hewed and rowdy. The boat's chief and the 12-man crew were tough customers in more than one sense, so I was proud to have kept them readily supplied and the tugboat operational on a very limited budget during my watch.
After the Navy I became a Defense Department civilian employee and for the last 21 of my 37 years of military-civilian service, I was the administrative officer of a Defense Department command headquartered in Philadelphia.
In addition to overseeing security and safety programs for the command, I was also responsible for purchasing supplies, equipment and services for the command's military personnel and civilian employees duty-stationed on military bases and defense contractor facilities across five states. Like my days on the tugboat, I often operated with a limited budget. I was tasked with providing the workforce the required tools to do their jobs, but I was also tasked by public law with preventing government waste, fraud and abuse.
So it was with some interest that I saw that office supplies and services fraud listed as number 15 in the Federal Trade Commission's (FTC) list of Top 20 Consumer Fraud Complaints in 2007. The FTC list was released on February 13, 2008.
The FTC collects consumer fraud complaints from more than 125 organizations and then makes them available to more than 1,600 civil and criminal law enforcement agencies. The number one complaint, not surprisingly, was identity theft. Identity theft has been covered widely in the press, including in this column and other Businessknowhow.com articles, but I've not seen much coverage of supplies and services fraud.
According to the FTC, office supply scams is a form of telemarketing fraud, which cost American businesses an estimated $200 million dollars a year. These crooks often target small businesses and non-profit organizations, but their victims also include Fortune 500 companies.
Like a variety of other scams, supply scammers operate out of a "boiler room," which is a temporary office set up with desks and telephones that can be dismantled quickly as the conmen scatter like rats. According to the FTC, a steady supply of start-up companies and new businesses provide a steady supply of fresh victims for the conmen. Additionally, small businesses provide a large percentage of the new jobs added to the economy each year.
The conmen make supply scams work by creating confusion over product invoices and goods and by exploiting the inexperience of workers who handle these matters. The fraudulent suppliers use generic sounding names like "Central Supplies" and send legitimate-looking invoices.
Small businesses that lack well-established procedures for purchasing goods often fall victim to these conmen, particularly if the workers responsible for office supplies and machine maintenance are temporary workers who are unfamiliar with your firm's supply costs and your regular vendors.
Victims generally realized they have been bilked when they receive shipments never authorized and bills for items they never received. The FTC states that typical items promoted in these scams are toner for copiers and printers, ink cartridges, light bulbs, and janitorial supplies.
The FTC combats office supply fraud via the Telemarketing Sales Rule and by employing its broad authority under Section 5 of the FTC Act, which prohibits unfair or deceptive practices. The FTC typically seeks temporary relief by freezing the assets of the conmen (if they can) and by attempting to reimburse the victims.
But the best bet is to avoid becoming a victim in the first place. The FTC offers five tips to avoid office supply fraud.
Know your rights.
If you receive supplies or bills for services you didn't order, don't pay, and don't return the unordered merchandise.
Treat any unordered merchandise you receive as a gift.
It's illegal for a seller to send you bills or dunning notices for merchandise you didn't order or ask you to send back the merchandise, even if the seller offers to pay the shipping costs.
Assign designated buyers and document your purchases. Designate certain employees as buyers. For each order, the designated buyer should tell the supplier to put the purchase order number on the invoice and bill of lading. The buyer should also send a copy of every purchase order to their accounts payable department, and keep blank order forms secure.
Check all documentation before you pay the bills. When merchandise arrives, the receiving employee should verify that it matches the shipper's bill of lading and your purchase order. Pay special attention to brands and quantity, and refuse any merchandise that doesn't match up or isn't suitable for your equipment. The receiving employee should send a copy of the bill of lading to the accounts payable department. Bills for services should be reconciled the same way. A supplier should not be paid unless the invoice has the correct purchase order number and the information on the invoice, and the purchase order and the bill of lading match.
Train your staff. Train everyone in how to respond to telemarketers. Advise employees who are not authorized to order supplies and services to say, "I'm not authorized to place orders. If you want to sell us something, you must speak to ______________ and get a purchase order." Establish a team that includes the employees who buy and receive the merchandise or services, and those who pay the bills, and develop some standard "buying procedures." For example:
Buy only from vendors you know and trust.
Be skeptical of "cold" or unsolicited calls and practice saying "no" to high pressure sales tactics. Legitimate companies don't use pressure to force a snap decision.
Finally, consider asking new suppliers to send a catalog first.
Report fraud. Report office supply scams to the FTC, your state Attorney General, local consumer protection office or Better Business Bureau. In addition, consider sharing your experiences with other businesses in your community to help them avoid similar rip-offs.
You can file a complaint online at www.ftc.gov or call 1-877-FTC-HELP (382-4357). The FTC states they can't resolve individual problems for consumers or businesses, they can act against a company if it sees a pattern of possible violations of law.
To see the FTC's Top 20 Consumer Fraud Complaints in 2007, you can visit http://www.ftc.gov/opa/2008/02/fraud.shtm