Postal officials disclosed yesterday that "unscrupulous" businesses have discovered how to rig postage meter machines and may have cheated the agency out of more than $100 million in postage this year.
Postmaster General Marvin T. Runyon, decrying what he called "a growing problem," offered a $50,000 reward for information leading to arrest and conviction of anyone altering one of the 1.4 million meter machines now in service. The reward is five times greater than the usual postal fraud reward, which a spokesman said is a measure of how serious the problem is.
Meter machines, in use since the 1920s, now account for 40 percent, or about $18 billion, of the Postal Service's $48 billion annual revenue.
The devices, which are supposed to be tamper-proof, are licensed by the Postal Service.
The machines, standard equipment in most businesses, contain a component that must be brought to a post office or can be activated by remote control, allowing the device to imprint valid postage on envelopes. Businesses are required to prepay postage before the machine, which they lease from an approved manufacturer, can become operational.
In late February or early March, postal inspectors discovered, as spokesman Frank Brennan put it, that someone "figured out how to get inside the machines." The resulting fraud is difficult to detect because the machine prints what appears to be a valid postage imprint on envelopes.
Postal officials, citing criminal investigations in several areas of the country, were deliberately vague in their description of the scam.
It began as what Runyon said appeared to be an isolated case of fraud discovered "not too many months ago."
"Unfortunately, we believe we have a potentially growing problem," Runyon said. "How big? It's in the tens of millions of dollars and we are in the early stages of the investigation," he said, adding that estimated total loss is $100 million. Brennan would not say where the investigation was focused, only that the inspection service believed that the fraud involved "more than one" operation.
Runyon disclosed the problem at a New York City news conference, a location Brennan said was chosen because of Runyon's schedule.
The $100 million figure indicates that the suspect mailings were massive, Brennan later acknowledged. "The tampering is very sophisticated," he said.
A source familiar with the investigation said the tampering was "a major problem" for the Postal Service because inspectors believed that individuals had discovered how "to rig a machine in a minute." The source said he understood that the investigation had focused on a widely used older, mechanical model machine manufactured by Pitney Bowes Inc. of Stamford, Conn., a firm that dominates the meter industry.
But Brennan said that "it is not just Pitney Bowes" and that mechanical machines of other manufacturers were also involved.
"For obvious reasons, we are not going to be commenting on the specifics," said Shelia McCaffery, a Pitney Bowes spokeswoman.
Runyon said postal officials were "already at work with meter manufacturers to eliminate or modify meters that can be compromised."