FTC Testifies Before Senate Small Business Committee on Office Supply Fraud

Office supply fraud costs its victims, typically small businesses and non-profit organizations, an estimated $200 million per year, the Federal Trade Commission today told the Senate Committee on Small Business at a hearing concerning office supply scams. These scams, which involve the deceptive sale of non-durable or consumable products that are used in the course of business and purchased on a regular basis, persist in part because the pool of potential victims grows larger each year. There are about 24 million small businesses in the United States, representing 99 percent of all U.S. businesses, the testimony noted.

"The Commission has battled office supply fraud for many years in the courts and has undertaken substantial efforts to educate businesses on how to recognize and avoid the scam," said Jodie Bernstein, Director of the FTC's Consumer Protection Bureau, in delivering the Commission's testimony. Bernstein then announced the launching of Project BOSS ("Banish Office Supply Scams"), an extensive, grass-roots business education campaign designed to reach new companies at their inception and to provide existing companies with new tools to help them detect and avoid fraud.

According to the testimony, individual stores and franchisees, as well as charitable organizations, places of worship, government offices, college sororities and fraternities, and even congressional offices, are susceptible to office supply fraud. "Most small businesses have copiers and printers and need maintenance and cleaning supplies," Bernstein said, "so all are potential victims of unscrupulous telemarketers."

The Commission noted that one of the most common forms of office supply fraud occurs when businesses receive bills for merchandise that they never ordered, shipments that were never authorized, or bills for products that were never received. The fraud is committed through misrepresentations over the telephone and by direct mail. The most prevalent product pitched by fraudulent office suppliers is copier machine or printer toner, and is known throughout the industry and law enforcement as "toner-phoner fraud." Other products common to office supply frauds are light bulbs and large jugs of liquid cleansers.

The FTC's testimony addresses the Commission's vigorous efforts and partnerships with state and government officials to combat office supply fraud. It cited the most recent law enforcement successes in connection to this type of fraud. According to the testimony, office supply scams have been around for at least 20 years and show little sign of abating despite aggressive and continuous law enforcement efforts by the FTC and other federal and state agencies. Since 1986, the FTC has prosecuted 28 office supply fraud lawsuits involving nearly 60 corporations and 60 individual defendants, using its authority under Section 5 of the Federal Trade Commission Act, which prohibits deceptive acts or practices, and the Telemarketing Sales Rule, which defines and prohibits deceptive telemarketing practices. "Office supply fraud continues to be a thorn in the sides of small businesses and non-profits and continues to be of concern to the Commission," Bernstein noted. Many of the FTC's office supply fraud cases were brought as part of law enforcement "sweeps" - coordinated, multi-agency efforts to target a particular type of fraud nationwide or frauds located in a particular geographic area. In the most recent sweep, "Operation Misprint," the FTC and the State of Illinois filed 14 cases in December 1999, primarily involving toner-phoner frauds.

"The Commission is pleased to announce that recent settlements and completed collection efforts in prior cases will return more than $4.2 million to office supply fraud victims in the near future," Bernstein said. In addition, the Commission announced that it has resolved a matter that will result in the largest civil penalty - $500,000 - obtained under the Telemarketing Sales Rule.

"In addition to law enforcement, the Commission uses consumer education efforts to combat this type of fraud," Bernstein said. The FTC routinely alerts businesses and consumers about ongoing frauds and how to detect and avoid them, she added.

Project BOSS is a multi-faceted education effort to alert small businesses and non-profit organizations about office supply fraud. The FTC and a dozen industry, business association and governmental partners will distribute educational materials to potential victims of office supply scams. Through Web site links, invoice stuffers, mass mailings, outreach to local business groups, and many other initiatives, the Project BOSS partners hope to reach thousands of small businesses and non-profits and teach their employees and volunteers how to respond to office supply telemarketers when answering the telephone and inform them of their rights if they receive unordered office supplies. In addition, the FTC has a new, dedicated Web page at www.ftc.gov/bcp/edu/microsites/supplies/ devoted to small businesses and the frauds that target them. "We hope that our new grass-roots based campaign and today's hearing will help prevent more small businesses from becoming victims," Bernstein said.

The Commission vote to approve the testimony was 5-0.

Copies of the full test of the testimony and the news release are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 1-877-FTC-HELP (877-382-4357); TDD for the hearing impaired 202-326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.