Manufacturers are losing sizeable sums of money from coupon fraud. So why isn't more being done to tackle the problem, asks Chloe Smith

It was a classic sting operation. In New York in the late 1970s a 25 cent coupon was printed in the city's newspapers for a new brand of detergent, Breen. Within weeks 70,000 of the coupons had been redeemed at retailers who sent them back to CFCP, the issuer.

In ordinary circumstances this would be a fantastic result for an fmcg company . But this was no ordinary case. Breen didn't exist. CFCP was not an fmcg company - it stood for Coupon Fraud Control Center and four retailers ended up being charged with attempting to fraudulently redeem the coupons.

Now, the UK is trying to work out how to tackle its own mounting coupon fraud problem. The Institute of Sales Promotion (ISP) last week told The Grocer it was taking legal advice on whether it could force UK retailers to crack down on one aspect of the problem: consumer misredemption.

According to the ISP, an estimated one in six of the 450 million coupons issued in the UK each year is redeemed against the wrong product as consumer websites such as have spread the word that retailers often accept coupons as cash. It is costing fmcg companies £50m a year, the ISP estimates. So what can we learn from America and how likely is the ISP to succeed in its mission?

In the US, since the Breen incident there have been dozens of prosecutions in the US, the most recent of which involved the management of a coupon-handling company accused of systematically exaggerating the number of coupons sent back by retailers and pocketing the difference paid by manufacturers.

But misredemption is no longer a big issue as all major retailers programme their tills to only scan coupons if the product has been bought, says Bud Miller, executive director of America's Coupon Information Corporation.

This is not the case in the UK and Becky Munday, chief executive of Mando Brand Assurance and vice chair of the ISP, says it may be hard to persuade retailers to change their policy. The problem, she says, is that they see the technology as an unnecessary expense and believe they can score competitive advantage by allowing consumers to redeem coupons for cash. "Retailers can put a stop to it but it's not in their interests to do so," she says bluntly.

Tesco concedes the technology is available but says manufacturers would have to approach Dunnhumby, which manages its Clubcard loyalty card scheme, if they wanted till validation .

Misredemption is not the only concern for manufacturers. The recession has seen a rise in more calculated fraudulent activity with organised gangs selling counterfeit coupons on Ebay and manipulating barcodes of legitimate coupons to increase their face value. Munday now has one member of staff dedicated to scouring Ebay to check whether any suspect coupons have been offered for sale.

Manufacturers are reluctant to talk openly about the problem, but one told The Grocer he had been billed thousands of pounds by Tesco for coupons with random face values, their barcodes manipulated by fraudsters. Tesco refunded the money but says it is difficult to ask cashiers to police the system.

In the US, Miller says one of his biggest successes in combating fraud is an alert system whereby "virtually the entire industry" can be informed in less than an hour of a counterfeit by email. The CIC has also made available a hologram to any manufacturer issuing coupons.

The US efforts have been coordinated by the influential Grocery Manufacturers Association, but in the UK, where power is more weighted towards the retailers, consensus on how to tackle coupon fraud will be harder to achieve.

"We'd like to learn lessons from the US but manufacturers wield far more power over retailers than they do here," says one industry source. "We need to work together as an industry, but that depends on retailers coming on board."