Distributors and retailers that underreport beverage sales may cost US deposit-return programs far more than consumers who redeem containers they shouldn’t, according to a new guidebook from the Container Recycling Institute (CRI).
In California, state audits typically find $3 million to $15 million a year in underreported deposits. That is less than 1% of the roughly $1.6 billion in deposits the program collects annually. CRI estimates the real figure is $200 million to $300 million, or about 15%.
The Culver City, Calif.-based nonprofit said underreporting is widespread across the 10 bottle bill states and may run from about 16% to more than 40% in some of them. By comparison, cross-border redemption fraud in Oregon has been estimated at under 5% a year.
The organization released “A Stronger Return on Every Deposit: Strategies to Prevent Beverage Container Fraud, Free Riding, and Errors,” describing it as the first comprehensive review of the problems across all 10 deposit states. It draws on state statutes, agency data and interviews with regulators in more than a dozen jurisdictions.
The guidebook found that no state has a comprehensive framework for preventing fraud, free riding and errors. Interviewees named understaffing as the most common problem.
“DRS programs have demonstrated their value in recovering beverage containers and producing high-quality recyclable material,” CRI President Susan Collins said, in a statement.
She added that CRI’s goal is to “identify approaches that have worked, explain how liabilities can arise, and give policymakers and program administrators a range of tools they can use to strengthen their own systems.”
Three problems, different costs
Free riding takes several forms. Distributors may underreport sales or never register at all. Retailers may sell store-brand beverages without reporting them. Small retailers may buy beverages at big-box stores across state lines and charge the deposit back home.
The guidebook sorts the issues into three categories:
- Redemption fraud: getting a refund through illegal or unauthorized means, such as bringing in containers bought in a non-deposit state.
- Free riding: selling containers into a deposit state without initiating or paying the deposit, which shifts the cost to other participants.
- Operational errors: unintentional mistakes that still cause financial losses.
CRI said underreporting also inflates published redemption rates, because the number of containers sold looks smaller than it is. It raises costs for compliant companies too when fees are calculated per container.
Maia Corbitt, executive director of Americans for Clean Water, came up with the idea for the guidebook. She called fraud and free riders “real challenges, but they are solvable ones.”
“By understanding where problems have emerged in existing programs and how they’ve been addressed, policymakers have an opportunity to design better systems from the start,” she said.
Michigan
Michigan offers the clearest look at fraud cases. In 2021, the state passed Public Act 139. The law created a Bottle Bill Enforcement Fund that gives the Michigan State Police $1 million a year to investigate violations.
The State Police’s 2025 report to the Legislature found that “distributors and dealers have the greatest potential to commit the largest amount of fraud.” It said no distributor audits have been conducted.
The report cited one dealer case involving $65,000 in alleged fraudulent return slips over two years. Six more dealer cases are under prosecutor review. The Michigan Attorney General is reviewing a separate case involving nearly $1 million in suspected deposit fraud over four years. That case involves delivery drivers and distribution center employees allegedly diverting products to secondary distributors.
CRI said Michigan’s law doesn’t direct its enforcement money at the biggest risk. The State Police found that distributors and dealers pose the greatest fraud risk, but no single agency has the funding, authority and mandate to go after it.
Act 139 doesn’t require a dedicated fraud unit, a minimum number of investigators or performance metrics. It doesn’t require the State Police to spend the money at all, and deposits into the fund stop once its balance tops $3 million. The Michigan Department of Treasury has authority to investigate violations but gets no dedicated funding.
California
California has 6,944 registered beverage manufacturers and distributors. CalRecycle’s Office of Audits picks auditees on a risk basis and typically reviews fewer than 1% of them each year. Audits found the money the audited companies were found to owe the program in underpaid deposits and fees amounted to $8.4 million in 2025 and $15.8 million in 2024.
On the redemption side, CalRecycle conducted 1,286 recycling center inspections in 2025. It issued notices of noncompliance to 518 centers and notices of violation to 263 and opened 76 investigations. The agency has 11 inspectors and 30 investigators covering about 30,000 dealers and more than 1,200 recycling centers.
In June, the state’s legislature approved seven new compliance positions at an estimated cost of about $1 million a year. Three are special investigators who will focus on prevention rather than responding after fraud occurs.
California also uses its 16 agricultural border inspection stations to check for imported empty containers. Anyone bringing in more than 25 pounds of aluminum or plastic, or more than 250 pounds of glass, must file an imported material report.
Hawaii
Hawaii’s law previously required every distributor to pay for a third-party audit every two years. The governor suspended that requirement by executive order, citing the hardship on small businesses.
The governor signed SB 3138 on June 25, replacing the old requirement with a tiered system. Distributors selling 75 million or more containers a year must get an independent audit every other year. Those selling between 5 million and 75 million need one every five years.
Distributors selling fewer than 5 million containers a year are exempt from audits. CRI said the state Department of Health will presumably conduct random, risk-based audits of those companies instead.
Maine
Maine moved deposit oversight from the Department of Agriculture, where less than one full position was devoted to enforcement, to the Department of Environmental Protection. A 2023 law raised staffing from two to five.
Under the commingling cooperative plan approved in 2026, the program administrator must randomly audit 5% of deposit initiators’ sales reports.
Not sharing data
CRI asked every deposit state except Iowa how many companies they audit and what the audits find. Five responded.
The Oregon Beverage Recycling Cooperative (OBRC) audits 17 of the 441 companies that report to it, or 3.85% a year. Vermont has authority to audit its 92 reporting companies but no active audit program, and it reported no audits in recent years.
Massachusetts and Connecticut said state law bars them from disclosing audit counts or findings. Maine, Michigan and New York said they couldn’t provide the data. Hawaii didn’t respond in time for publication.
State lines create openings
Every deposit state except Hawaii borders at least one non-deposit state. Neighboring deposit states often differ in deposit values and covered beverages. Those gaps create openings for transshipment and cross-border redemption.
Connecticut recently tightened its limits under Public Act 26-2. Redemption centers can now take 4,000 containers per person per day, down from 5,000. They must keep records on anyone returning more than 1,000 containers in a day, down from 2,500. The act also temporarily cuts handling fees for high-volume redemption centers that don’t use automated barcode or UPC scanners.
CRI also found that every state’s definition of who must initiate a deposit has loopholes, and none of them address e-commerce.
CRI said the most complete fix would be a national deposit system. Short of that, it called for harmonizing state laws and operating practices.
“Because every deposit state has its own laws, requirements and operating practices, there is no single solution to every problem,” Collins said.
Recommendations
The guidebook makes 13 recommendations. The first is that states write anti-fraud measures directly into statute when they create a producer responsibility organization (PRO). CRI said that if the law says nothing on the subject, the PRO’s board decides how much control to use, and some measures may never be put in place.
The organization also called for a centralized data system that tracks beverage sales, deposits collected and redemptions in real time. With all of that data in one place, regulators can cross-check distributor, retailer and redemption figures and catch discrepancies faster. Deposit initiators should report their sales to a central body, and that body should audit them.
Penalties need to be large enough to matter. CRI said some audits uncover underpayments but carry penalties too small to change a company’s behavior. Ideally, a penalty would recover the full loss plus interest, with an added amount to deter future violations.
To find companies that aren’t registered, CRI suggested cross-checking program databases against alcohol tax and wholesaler records and against state licensing records for bottled water manufacturers.
It also recommended that states consider “well-publicized” whistleblower incentives for reporting unregistered distributors and manufacturers. Audits should look at retailers acting as de facto distributors too, not only manufacturers and distributors.
Underlying most of the recommendations is staffing. CRI pointed to Alberta and Maine as examples of how adequate staff makes it possible to prevent, detect, investigate and enforce. It said many jurisdictions need substantially more auditors to recover underpayments.
CRI also said programs should set a measurable target instead of aiming for zero fraud, which experts said would be prohibitively expensive. They suggested a 2% fraud and error rate as practical, with results reported publicly every year.
