Sales from vending machines generate millions of dollars each year for schools from coast to coast. But until now, school officials had no good way to verify they were receiving all the vending-machine revenue they were rightfully owed. Most school officials simply had to rely on the vending-machine companies to tell them how many drinks or snacks were dispensed.

All that could change with a new monitoring and auditing service from Miami-based Vend Audit Controls. The company claims its service has the potential to save a school thousands of dollars in underreported sales.

Vending-machine operators typically pay from 20 to 30 percent of each sale to the school, making vending-machine contracts a popular and lucrative fundraiser for schools.

“Right now, there is no accountability procedure in place,” said Thomas E. Akin, principal of Cypress Creek High School in Orange County, Fla. “The extent of accountability we have comes from the vendors. We have to trust them.”

Vend Audit Controls’ VendCheck solution requires vending machine operators to plug a handheld reader into the vending machine for a few seconds during service visits to download stored sales data, which come in an industry-standard format known as DEX.

Vendors upload this raw data via the internet to Vend Audit Controls’ server for analysis. The company then produces a precise sales report for the school district and the vending machine operator.

Vend Audit Controls supplies the handheld readers to machine operators at no cost, and there’s no up-front charge for schools to participate. School administrators simply sign a contract agreeing to give the company 40 percent of any recovered funds–making the program seem like a no-risk proposition.

But for some school leaders, it’s not that simple.

After noticing a large discrepancy between the payments received from two vending machine operators selling similar products in the same number of machines, Cypress Creek High School began piloting the VendCheck service.

From first analysis, the company estimated that Orange County might be owed nearly $500,000 from underreported sales. However, Vend Audit Controls had to cut the pilot short because the school board would not mandate the use of the handheld reader in its contract with a vending machine operator who refused to cooperate, Akins said.

Jeff Stubins, chief executive officer of Vend Audit Controls, said his company in general has received a poor reception from school leaders. He said either they have bigger things to worry about, or they don’t want to risk damaging their relationship with their vending-machine operator.

“They’re terrified they’re going to anger the operator. They’re scared the operator will just not do business with them,” Stubins said.

Yet the problem of vending-machine operators cheating customers is real, Stubins says.

Even the National Automatic Merchandising Association (NAMA), which represents the vending-machine industry, recognized that some operators engaged in a practice called “R-Factoring,” where “sales are underreported, sometimes as much as 25 to 30 percent, to the client.”

In a 2002 document distributed to its members on how to detect this practice, the group said vending-machine operators are motivated to R-Factor sales because of high competition, low profit margins, and the desire to pay fewer taxes to the government.

NAMA insists this practice is now history. Since January 2003, all NAMA members have had to sign a business and ethical statement promising, among other things, that they will conduct themselves “fairly, ethically, and honestly in all situations.”

“Anyone concerned about [vending-machine fraud] should make sure they are doing business with a NAMA company,” said NAMA spokeswoman Jackie Clark.

Despite this measure, Vend Audit Controls recommends that if an accountability measure exists, schools should try it.

“The better vending-machine operators do a really good job at making their school customers happy and give back to the school community, but there still needs to be accountability–and we are providing that,” Stubins said.

He claims, “In one of the pilots we’re doing, when the operator was notified he needed to use a handheld, [reported] sales went up 20 percent.” He would not divulge the name of the client.

But Stubins did say he estimates the Chicago Public Schools could recover nearly $3 million. Chicago, which has 1,400 vending machines in 602 schools, agreed to pilot VendCheck in 18 machines at one high school.

“We want to make sure everything is fine, including the revenues,” said Netza Roldan, manager of vending-product services for the Chicago Public Schools, which has an exclusive contract with Coca-Cola to receive $21 million over five years.

“We don’t even know if it’s going to work or if it’s not going to work,” said Roldan, who is leery of Vend Audit Controls’ claim. “We don’t think we’re that stupid to let someone like Coca-Cola steal $3 million from us.”

The Philadelphia Public School District also agreed to test VendCheck in one of its administrative buildings. “Anytime we can operate better and more efficiently on both sides of the cash register appeals to us,” said Cameron Kline, a spokesman for the district.

It’s too early to gauge the results of the program, because no school districts have completed pilots yet.

In addition to monitoring sales, Vend Audit Controls also looks for past accounting errors so schools can recover that income. Most recently, the company launched workshops to educate school district personnel about how to manage vending-machine programs.

Stubins said his company has several ways to evaluate a school district’s need for its services–including receipts that are off by a penny because they have been rounded or payments made in penny increments.

“That’s an easy one for us, because vending machines don’t take pennies,” he said.

School leaders who want to participate in a VendCheck audit can contact the company at info@vendauditcontrols.com or (877) 238-3065.

See these related links:

Vend Audit Controls
http://www.vendauditcontrols.com

National Automatic Merchandising Association
http://www.vending.org