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Avoiding Office Supply Scams
March
2000
Could your organization be a victim of an
office supply scam? If you don’t have adequate purchasing controls,
probably so. Businesses, churches, and fraternal and charitable organizations
are being bilked out of millions of dollars by bogus office supply firms. You
can protect yourself by learning to recognize the scams and understanding your
rights.
The typical office supply scam involves
goods or services that you routinely order: copier paper, toner and maintenance
supplies, equipment maintenance contracts, or classified advertising. When
fraudulent telemarketers call, they often lie to get you to pay for items you
didn’t order, or to get you to pay more than you agreed to. How? The
caller may falsely claim to be your "regular supplier" or to tell you that the
offer is "special" or "good for a limited time only." Con artists take
advantage of holes in your organization’s purchasing procedures or of
unsuspecting employees who may not be aware of office practices. What’s
worse, the office supplies peddled by these bogus firms often are overpriced
and of poor quality; the services usually are worthless.
The
Scams
Office supply scam artists generally use three ways to take
your money — the phony-invoice, the pretender, and the
gift-horse.
Phony-invoice Scams
The goal of the
phony-invoice scam is to get the name and address of an employee so your
organization can be shipped and billed for unordered goods or services. The
invoice includes the employee’s name as the "authorized" buyer. Scam
operators use various ploys to get an employee’s name: They may call
asking for help completing an order, claiming that "the accounting department
lost the name of the person we should send these supplies to," or they may ask
for the name of the person in charge of your Yellow Pages
advertising.
Once the con artist has an employee’s
name and address, he’ll ship the unordered merchandise. The phony invoice
arrives a week or so after — for two reasons: First, the inflated price
— as much as 10 times what you’d pay for the same goods from a
legitimate supplier — is less obvious if the invoice arrives after the
merchandise has been received and stocked. Second, the chances are good that
you’ve used the merchandise before the invoice arrives. Many organizations
mistakenly believe that they must return unordered merchandise or pay for
unordered merchandise if they’ve used it.
A twist on this approach may have the
fraudulent seller timing a phony invoice to match your purchase of legitimate
services from another vendor. For example, the seller sends you a bill for
unordered classified advertising soon after your ad runs in a legitimate
publication. The scam operator hopes you’ll be confused and pay his bill
instead of, or in addition to, the one from the legitimate company.
The
Pretender Scam
In the pretender scam, the caller may pretend to
be your regular or previous supplier, a replacement, or an "authorized"
supplier. By convincing you that the goods or services and prices offered are
the same as before, the caller hopes you won’t bring up prices,
quantities, and brands. Even if you do, the seller may try to brush you off by
saying, "We’ve supplied you in the past, but it’s been a while," or
"The price is the same as last time." If you insist on a price quote, the
seller may give a price that sounds reasonable for one carton but is actually
for a single unit, such as "$19.95 in a carton of 10." Translation: the carton
price is 10 times $19.95 — or $199.50.
In one variation on this scam, the caller
misrepresents the quality, quantity, type, price, or brand name. For example,
the ribbons for your IBM typewriters may not be IBM brand ribbons, or the toner
for your Xerox copier may not be Xerox brand toner. Some scam artists try to
duplicate brand name packaging; others sell half a carton of merchandise at the
full-carton price. Similarly, sellers of Yellow Pages advertising may actually
represent fly-by-night outfits that distribute few, if any, telephone
directories.
In another twist, the caller uses high
pressure tactics to rush your purchase decision and dodge questions about
price, quantity and brand names. The seller may falsely claim that prices are
going up soon, someone was forced out of business, a warehouse is overstocked,
or a limited inventory of government surplus is available. Or that a computer
glitch delayed notification of a price increase, but, as a courtesy, an order
has been reserved for you at the "regular" or "old" price.
Or, the seller may misrepresent the
purpose of the call, saying that he’s calling to send you a promotional
item such as a cordless screwdriver, free samples, or a catalog so you’ll
"think of him next time you order." Or the seller may claim that he’s
conducting a survey of office equipment or updating company records, leading
you to believe that he’s the regular or previous supplier. Before hanging
up, the caller may mention — in passing — actual merchandise.
"I’ll send that screwdriver to you right away ... and while I’m at
it, I’ll throw in a few deodorant blocks." Soon, a shipment arrives,
followed by the bill.
The
Gift-Horse Scam
The gift-horse scam tries to create mistrust
within an organization. The scheme starts when the caller tricks an employee
into accepting a gift — a free promotional item — with a passing
reference to merchandise or services. You receive overpriced unordered
merchandise, followed by an invoice with the employee’s name. When the
organization questions the employee, the fraudulent seller is betting that the
employee will be nervous about the gift when he denies placing the order. The
hope is that the organization will doubt the employee. When this scheme works,
the organization believes that the employee blundered into ordering something
that must be paid for.
After the Invoice
Arrives:
Scam artists spend significant time and energy on
collection efforts. They send as many invoices as it takes to get your money.
Invoices often are stamped "Past Due." In extreme cases, they’ll resort to
real or bogus collection agencies and threats of legal action.
An organization that pays for unordered
goods or services also may be targeted for additional scams. This practice is
called "reloading." For example, the seller may send a second shipment of "back
ordered" merchandise and another bill, or bills for service upgrades.
Additional invoices follow as long as you continue to pay. The con artist also
may sell your organization’s name to other scam operators, or move to
another bogus operation and target you with a new scheme.
The
Brush-Off:
When organizations complain that they didn’t
order the merchandise or services or that the price is too high, the scam
seller reacts in some predictable ways:
- Bullying. The seller
argues if you express any uncertainty about whether the supplies or services
were ever ordered: "They were ordered. We have a recording of Mr. Jones.
If you don’t pay, we can take you to court."
- Negotiating. Here, the
seller agrees to accept a lower price. After all, the goods and services are so
grossly overpriced that almost anything the seller gets is profit. If you
complain about price, the seller may say, "You were charged what? They must not
have given you the discount for ...." The seller then tries to negotiate "a
better deal." Sometimes, the seller appeals for sympathy: "We really need the
business. I’ll let you have it for...."
- Charging for returned
merchandise. The seller claims you can return merchandise if you pay a
"restocking fee." In fact, the fee is often more than the goods are worth.
Similarly, the seller may try to get you to pay shipping charges to return the
items.
Protect Your Organization
You can protect your
organization from paying for unordered goods and services. Here’s how:
1. 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. You may treat unordered merchandise as a gift. By law, it’s
illegal for a seller to send you bills or dunning notices for unordered
merchandise, or ask you to return it — even if the seller offers to pay
for shipping. Further, if the seller sends you items that differ from your
order in brand name, type, quantity, size, or quality — without your prior
express agreement — you may treat the substitutions as unordered
merchandise. Unordered services are treated the same way. However, first
consider the possibility that the seller made an honest
mistake.
The FTC’s Telemarketing Sales Rule
offers additional protections in business-to-business sales of non-durable
office or cleaning supplies and most sales of goods or services to individuals,
groups, or associations. The Rule requires telemarketers to tell you it’s
a sales call — and who’s doing the selling — before they make
their pitch. They must tell you the total cost of the products or services
they’re offering, any restrictions on getting or using them, and that a
sale is final or non-refundable before you pay. It’s illegal for
telemarketers to misrepresent any information, including facts about the goods
or services being offered.
2. Assign
designated buyers and document your purchases. For each order,
the designated employee should issue a purchase order — electronic or
written — to the supplier with an authorized signature and a purchase
order number. The order form should instruct the supplier to note the purchase
order number on the invoice and bill of lading. The buyer should send a copy of
every purchase order to your accounts payable department. Keep blank order
forms secure.
3. Check your
documentation before paying bills. When merchandise arrives, the
receiving employee should verify that it matches the shipper’s bill of
lading — paying special attention to brands and quantity — and your
purchase order. Refuse merchandise that doesn’t. If everything’s in
order, the employee should send a copy of the bill of lading to your 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, the purchase order and the bill of
lading match.
4. 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."
Buy from people you know and trust.
Authorized employees should be skeptical of "cold" or unsolicited calls and
feel comfortable saying "no" to high pressure sales tactics. Legitimate
companies don’t pressure you to make a snap decision. Finally, consider
asking new suppliers to send a catalog first.
Where
to Complain
Report office supply scams to the Federal Trade
Commission, your state Attorney General, local consumer protection office, or
Better Business Bureau. In addition, you may want to share your experiences
with other businesses to help them avoid a rip-off.
You can file a complaint with the FTC by
contacting the Consumer Response Center by phone: toll-free 1-877-FTC-HELP
(382-4357); TDD: 202-326-2502; by mail:
Consumer
Response Center,
Federal Trade Commission,
600 Pennsylvania Ave, NW,
Washington, DC 20580;
or through the Internet,
using the online complaint
form. Although the Commission cannot resolve individual problems for
consumers, it can act against a company if it sees a pattern of possible law
violations.
Your
Opportunity to Comment
The Small Business and Agriculture
Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards collect
comments from small business about federal enforcement actions. Each year, the
Ombudsman evaluates enforcement activities and rates each agency’s
responsiveness to small business. To comment on FTC actions, call
1-888-734-3247. |
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