Deposit return scheme consultation: analysis of responses

9 Fraud and security issues (Q23 and Q24)

9.1 The consultation paper noted the risk of fraudulent activity by individuals and organisations, and it discussed measures (including labelling) that might need to be taken to prevent fraud. Two questions invited views on labelling options and the need for other measures to address any other security issues in the scheme:

Question 23: Which option for labelling do you believe offers the best balance between reducing potential for fraud and managing costs to producers and retailers? [No changes to current system / Specific barcode / High security label] Please elaborate.

Question 24: Are there other security measures we should be considering, for instance heightened security measures at key return locations? [Yes / No / Don’t know]

Preventing fraud (Q23)

9.2 Question 23 asked for views on which one of three options offered the best balance between reducing the potential for fraud and managing costs to producers and retailers. Table 9.1 shows that a substantial majority of respondents (72%) thought that adding a specific barcode offered the best balance between reducing potential fraud and managing costs to producers and retailers. Seventeen percent (17%) favoured no changes to the current system, and the remaining 11% favoured a high security label.

9.3 A specific barcode was the preferred option for both individuals (72%) and organisations (66%). However, there was some variation in support for different options between different types of organisational respondents. A specific barcode was most popular among DRS companies (100%), food and drink producers (83%), community bodies (83%), charities (80%), recycling and waste management organisations (70%), the hospitality and restaurant trade (60%) and retailers (67%), while two-thirds of environmental consultancies (67%) and over half of packaging manufacturers (58%) favoured a high security label.

Table 9.1: Q23 – Which option for labelling do you believe offers the best balance between reducing potential for fraud and managing costs to producers and retailers?

	Specific barcode		High security label		No changes to current system		Total
Respondent type	n	%	n	%	n	%	n	%
Public sector organisations	9	47%	6	32%	4	21%	19	100%
Food and drink producers	15	83%	1	6%	2	11%	18	100%
Charities	8	80%	1	10%	1	10%	10	100%
Retailers	8	67%	3	25%	1	8%	12	100%
Recycling / waste mgmt orgs	7	70%	2	20%	1	10%	10	100%
Packaging manufacturers	5	42%	7	58%	–	0%	12	100%
Community bodies	5	83%	–	0%	1	17%	6	100%
Environmental consultancies	2	33%	4	67%	–	0%	6	100%
Hospitality and restaurant trade	3	60%	–	0%	2	40%	5	100%
DRS companies	4	100%	–	0%	–	0%	4	100%
Other organisations	5	83%	–	0%	1	17%	6	100%
Total organisations	71	66%	24	22%	13	12%	108	100%
Total individuals	877	72%	121	10%	218	18%	1,216	100%
Total (organisations and individuals)	948	72%	145	11%	231	17%	1,324	100%

Percentages may not total 100% due to rounding. Note that six respondents (2 retailers, 1 recycling and waste management organisation and 3 packaging manufacturers) selected BOTH ‘specific barcode’ and ‘high security label’ in response to this question. These responses are not included in the table.

9.4 The following sections look in turn at the views expressed on the three options offered, before discussing respondents’ more general comments on security labelling. 

Views on the option of a specific barcode

9.5 Table 9.1 shows that a specific barcode was the most popular option among individuals and most types of organisations. There were three main reasons given for this:

• Using this method would build on the existing barcode system which was widely used and familiar to consumers, retailer and producers / manufacturers. The technology already in place in many potential return locations could be adapted to support the scheme.
• A specific barcode would provide a simple, cheap and easy to use option that was proportionate to the likely scale of fraudulent activity, and would encourage industry cooperation.
• Barcode technology offered the required functionality in terms of (i) traceability, monitoring and audit, (ii) adaptability and flexibility over time, with limitless combinations available, (iii) supporting automation of the deposit return transaction process, (iv) offering a visual check confirming that an item was part of the scheme, and (v) offering scope to include further consumer information that would be accessible via smartphones.

9.6 Some respondents also said that barcodes could not easily be tampered with or copied; however, this was contested by other respondents – see paragraph 9.9.

9.7 Rather than outlining specific advantages of barcodes, some respondents simply stated that this option offered the best balance in terms of effective security at reasonable cost. Some saw this option as the ‘absolute minimum requirement’; others thought a high security label offered better security but at too high a cost.

9.8 Some respondents also commented on more practical aspects of using barcodes, suggesting that the barcode (i) should be securely attached to the container, or on the container itself rather than on an attached label, and (ii) should be accompanied by a numerical code for use in case of barcode failure. 

9.9 In contrast, those who gave reasons for not favouring this option, thought that barcodes could be too easily tampered with or produced for fraudulent purposes, or could be accidentally damaged, thus preventing the deposit redemption. It was also noted that not all small retailers had barcode technology in place (one organisation put this figure at about 50%), and that the reuse of barcodes by retailers might cause problems in a DRS context.

Views on the option of a high security label

9.10 Those favouring the use of high security labels mainly felt that this would offer the best defence against fraud. This group suggested, variously, that such labels would (i) ensure single-return only, (ii) support traceability and audit, and (iii) be tamper proof and difficult to forge.

9.11 The cost implications of this option were discussed (by organisations in particular). Some were positive about the perceived security benefits but thought its use should depend on further economic analysis; others believed that there would be costs associated with initial investment, but that this would build confidence in the system and be worthwhile in the longer term. Less often, respondents thought that a high security label would be a low-cost simple option, that would be effective for those importing from elsewhere. 

9.12 Respondents commenting on label design suggested that high security labels might incorporate currency-style security markers, watermarks, screen printing, unique symbols, holograms, and ultraviolet ink. Respondents often noted the importance of labels being hard to remove, with embossed labels seen as a solution by some. 

9.13 Those opposed to this option thought it would be too expensive, or unnecessary given the likely level of fraud. Others were unclear about the advantages of a high security label over the alternative of a specific barcode. 

Views on ‘no change to the current system’

9.14 Those who favoured ‘no change to the current system’ generally made one or more of the following points:

• Fraud was unlikely to be a major issue (particularly if a UK-wide scheme was introduced), and expense on security markers of any type was therefore not justified – the system should simply pay out based on items returned with the cost of fraud being counterbalanced by the non-return of some items.
• The system should be able to use existing barcodes – this would be adequate in terms of security, and functionality, and would have the least impact on businesses in terms of costs and logistics. 
• Not introducing any additional security would allow the system to be kept simple, would maximise recycling, and ensure a speedy return process for consumers.
• No system was fool proof in terms of fraud prevention or functionality; therefore, expense on security measures was not justified.

9.15 Those who gave reasons for not favouring ‘no change to the current system’ thought this could lead to significant fraud.

Other options

9.16 Some respondents (both individuals and organisations) put forward alternative suggestions for security labelling. The most common such suggestion was that a ‘QR’ code (a form of two-dimensional barcode with can be scanned and ‘read’ by a smart phone) might be used. These codes can hold significantly more data than standard barcodes and could provide a means for consumers to get information about the scheme. Other suggestions included embedded RFID chips, the development of specific codes (linked to producers, or doubling as lottery coupons to incentivise returns) and the use of ‘SmartWater’ technology.

Other comments on options for security labelling

9.17 There was a series of comments that arose regardless of the views of respondents on the three options offered, as summarised here:

• Some respondents (including some organisational respondents) indicated in their comments that they would be happy with either a high security label or a specific barcode or they stated that both options should be used in combination. These respondents prioritised particular features – e.g. the presence of a scheme identifier, effective fraud prevention, functionality for a wide range of return points, cost-effectiveness – and wished to see security arrangements that would best meet these requirements.   
• Some respondents thought that the consultation paper did not provide sufficient information to decide on the best option, or said that any decision should be based on a full economic analysis of the options, and that this could not be carried out until scheme details were agreed, and the likelihood of fraud could be assessed. Whether or not the scheme was Scotland-specific or part of a UK-wide approach was seen as critical to this assessment.
• There was a broadly held view that greater fraud prevention measures would be needed if a Scotland-only (as opposed to UK-wide) scheme was introduced, and that this would be complex and costly for businesses. There was a view that any decision on security options should be delayed until DRS arrangements for the rest of the UK were clearer.
• The impact on businesses, and small business in particular, was a common concern. Respondents emphasised the need for security measures to be simple and low-cost to minimise the burden on business at all points in the process. There were also calls for (i) transitional assistance for businesses in complying with any security systems and (ii) clarity regarding liability for fraud via manual returns.
• Respondents noted a wide range of specific circumstances that would need to be accommodated within any security system. These included: 
  • Type of return point: RVM and staffed return points, and staffed return points with and without access to relevant technology (e.g. for reading barcodes)
  • Nature and scale of fraud: Large-scale and ‘corporate’ fraud as well as small-scale fraud at individual level
  • Container type: Re-usable containers, multipacks, and other container types where inclusion of a security label may be problematic
  • Presentation of damaged barcodes / labels.
  • There were several suggestions made regarding the possible acceptance of containers not carrying the required security labelling (or with damaged labelling). These respondents wanted the scheme to prioritise the maximisation of returns and recycling rather than fraud prevention. They thought that all containers should be accepted, although some suggested that those without the required labelling (for whatever reason) should get a lower pay-out or no pay-out. (This was somewhat different to the view of those who argued for a system without any security labelling (see paragraph 9.14).

9.18 Overall, while organisations and individuals made broadly similar points in relation to the different options offered, organisations were particularly likely to argue for (i) the impact on business to be taken into account, (ii) a UK-wide approach that would assist consumer understanding, and be less costly and logistically complex for businesses, and (iii) any decision to be based on a sound economic analysis of the various options. 

Other security measures (Q24)

9.19 Question 24 followed on from Question 23 and asked about the need for other security measures to ensure the safe operation of a deposit return scheme. 

9.20 Table 9.2 shows that half of those who responded to this question (51%) selected ‘don’t know’. Of the remainder, 27% thought that other security measures were not needed, while 22% thought they were. However, there were notable differences between the responses of organisations and individuals. Organisations were much more likely than individuals to say other security measures should be considered (52% compared to 20%) and much less likely to say ‘don’t know’ (27% compared to 53%). Furthermore, the responses varied markedly between organisational types: the proportion agreeing that other security measures should be considered ranged from 20% (for respondents in the hospitality and restaurant trade) to 100% (for DRS companies).

Table 9.2: Q24 – Are there other security measures we should be considering, for instance heightened security measures at key return locations?

	Yes		No		Don't know		Total
Respondent type	n	%	n	%	n	%	n	%
Public sector organisations	7	33%	8	38%	6	29%	21	100%
Food and drink producers	5	26%	3	16%	11	58%	19	100%
Charities	5	56%	2	22%	2	22%	9	100%
Retailers	11	73%	–	0%	4	27%	15	100%
Recycling / waste mgmt orgs	6	50%	3	25%	3	25%	12	100%
Packaging manufacturers	12	80%	2	13%	1	7%	15	100%
Community bodies	4	67%	2	33%	–	0%	6	100%
Environmental consultancies	3	50%	2	33%	1	17%	6	100%
Hospitality and restaurant trade	1	20%	2	40%	2	40%	5	100%
DRS companies	3	100%	–	0%	–	0%	3	100%
Other organisations	3	60%	1	20%	1	20%	5	100%
Total organisations	60	52%	25	22%	31	27%	116	100%
Total individuals	249	20%	348	27%	676	53%	1,273	100%
Total (organisations and individuals)	309	22%	373	27%	707	51%	1,389	100%

Percentages may not total 100% due to rounding

9.21 The discussion below presents the comments made at Question 24. It also incorporates the wide range of suggestions made at Question 23 regarding measures which might be put in place alongside (or instead of) a barcode or high security labelling, with organisations frequently advocating a ‘package’ of security measures. It should be noted that there was often little difference in the views of those who said ‘yes’ and those who said ‘no’ at the initial tick-box question, with the response selected reflecting different assumptions about scheme design (see paragraph 9.26).

Views in support of other security measures

9.22 Among those who thought that other security measures were needed, a wide range of issues were identified which might need to be addressed. These included:

• Fraud (small and large scale), including attempted multiple returns of containers, misuse of barcodes / security labels, attempted return of non-scheme containers 
• Vandalism (including fire-raising), damage to RVMs, theft (or attempted theft) from RVMs and members of the public, littering, and anti-social behaviour at return sites, particularly those in open public spaces
• Physical and verbal abuse of staff at return locations (this was a particular issue for respondents from the retail sector)
• Stealing (including by staff) from storage facilities, RVMs and manual return points – respondents mentioned theft of deposit return money as well as of containers which could then be redeemed for a deposit, particularly from sites generating a lot of empty containers (e.g. pubs and food outlets; and from kerbside recycling collections)
• Littering, as a result of people scavenging for containers to return.

9.23 The security measures suggested by respondents focused on the following:

• Physical security: e.g. well-lit return sites in public areas; well supervised and secured storage facilities; alarms; CCTV; number plate logging; monitoring and surveillance by staff and / or via CCTV to detect fraudulent activity
• Scheme processes: e.g. regular emptying of RVMs and uplifting of non-RVM returns, accreditation of sites and provision of guidance on best practice 
• Scheme infrastructure: e.g. secure, tamper-proof RVMs; limits on the number of returns allowed at any one time and the amount of cash held in machines; the incorporation of container recognition technology into RVMs, designed to recognise eligible containers by shape, weight, etc.; acceptance of intact containers only; on-site / in-machine crushing of returns to remove their return value; designated return points for those returning large numbers of items
• Deposit arrangements: e.g. setting an appropriate deposit level; non-cash pay-outs using vouchers for spending or for cashing in at in-store payment points; payments direct to bank accounts or deposit-scheme accounts; the use of a DRS smartcard which would allow return behaviour to be tracked; a requirement to present ID, or proof of a Scottish postcode, or to present a purchase receipt or make a declaration relating to place of purchase in order to redeem a deposit
• Monitoring procedures: e.g. the use of IT to monitor return activity at individual sites, and the investigation of ‘irregular’ activity (e.g. out of the ordinary numbers of returns); regular and ‘spot’ audits and inspections.

Views against other security measures

9.24 In the main, those who thought other security measures were not needed made four points:

• They were sceptical about the likelihood of, or could not see the scope for, fraud or other criminal behaviour in relation to the DRS.
• They cited the experience of other countries (including Germany, Sweden, Norway, and the US) which they said indicated minimal problems.
• They thought that existing or standard security measures would be sufficient, with respondents referring to arrangements in place for cash ATMs, and the routine presence of CCTV in shops and other public spaces.
• They thought that appropriate scheme design (e.g. the use of high security labels or barcodes and secure RVMs) would address the risk of security issues. 

9.25 Respondents in this group often saw this as a matter of balance – between ensuring adequate security and cost. Given the perceived low risk, these respondents did not think substantial expenditure on security was merited. There was also a concern that excessive security would deter public participation the scheme.

9.26 The points made by respondents who thought existing / standard security measure were adequate or thought that fraud and other crime could be prevented via appropriate scheme design (bullet 3 and 4 at paragraph 9.24 above) often echoed those mentioned by respondents who said that other security measures should be put in place.

Other comments on fraud prevention and the need for other security measures 

9.27 Across both Questions 23 and 24 there was a range of views on the likelihood of the scheme giving rise to fraud and other criminal or anti-social behaviour, and the associated need for measures to prevent or tackle this. These included (i) concerns about fraud being a ‘huge problem’; (ii) an acceptance that some fraud was inevitable and that robust prevention measures and strict penalties were required in order to protect the system’s viability and integrity; (iii) uncertainty about the likelihood of fraud but a belief that it was right to take precautionary steps; (iv) scepticism about the scale of any security problems; and (v) a lack of understanding about the scope for fraudulent / criminal behaviour.

9.28 A substantial proportion of respondents (individuals in particular) used their comments (at Question 23 and 24) to indicate that they were not sure about or did not know the best options regarding security. Some specifically said that they did not have the knowledge to give an informed answer or that this was a matter for ‘experts’ in the field. Others thought that this was a decision for the scheme administrator, in consultation with relevant parties, or that it was something that should be monitored over time, with appropriate steps taken as and when required.

9.29 Finally, regardless of how the closed questions were answered, it was common for respondents to say that the need for security measures would ‘depend’ on a range of factors to do with scheme design; in practice, however, these respondents often went on to offer similar comments to other respondents.