Awareness Key to Tackling Supply Chain Fraud

Supply Chain Fraud BillionPhotos.com/Adobe Stock

Supply chain fraud levels have remained unchanged in the last few years, according to recent poll by Deloitte. Of the more than 2,660 professionals Deloitte surveyed, for the third year in a row, about 30% said their companies experienced supply chain fraud in the last year. Getting companies to reduce or prevent supply chain fraud takes organizational awareness. Mark Pearson, advisory principal in the Forensics & Investigations practice of Deloitte Financial Advisory Services, said company leaders must spread awareness about supply chain fraud and make sure procurement and supply chain professionals understand what to do when they witness it within the organization.

“It’s really that awareness that starts that process that everything else is built off of,” Pearson said.

Employees need to feel comfortable reporting supply chain fraud incidents, too. This starts with company leaders and management creating an “ethical workplace,” Pearson said, where employees know to bring information forward if they know fraud is occurring. If no one in the organization is reporting fraudulent or even suspicious activity, it will be much more difficult for that company to identify the waste taking place, he said.

Project managers, invoice approvers and procurement professionals pose the largest supply chain fraud risks, according to the Deloitte poll, with 26% of respondents pointing to project managers and 24.7% identifying procurement. Perhaps this is not surprising, since supply chain fraud occurs between the procurement and payment for a product. Pearson said there are typically three types of supply chain fraud: the type that is perpetrated through employees only, the kind taking place through an external party or a collusion between the two groups.

Signs of Improvement

While supply chain fraud has stayed the same over the last three years, Pearson said he has seen an increase in the number of companies showing interest in properly tackling fraudulent activity. They have acknowledged that supply chain fraud is occurring and want to know what they can do to restrict it so it has the minimum impact on profitability.

“Companies are really taking this seriously and see it as a major source of profit leakage,” he said.

The Deloitte survey also showed some signs of progress in supply chain fraud in specific industries. This year, 27% of technology, media and telecommunications companies reported supply chain fraud, down from the 33% in 2014.

However, the life sciences and healthcare respondents reported higher rates of supply chain fraud activity in the last year, with 36% in 2016 compared with 31% in 2014. Energy and resources, too, showed fraud on the rise, with 34% of respondents in that industry reporting incidents in 2016 compared to 27% in 2014.

Data Analytics for Supply Chain Fraud

Data analytics is also helping companies tackle supply chain fraud, though many organizations are not taking advantage of it. The Deloitte poll showed just under 30% of organizations are applying data analytics to mitigate supply chain fraud. Additionally, of the organizations that have analytics software in place, about 19% are not using it to manage supply chain financial risks. Analytics makes it easier for companies to identify where supply chain fraud is taking place, Pearson said. Previously, companies were often relying on sampling a set of suppliers to identify if external fraud was taking place. However, data analytics makes it possible for an organizations to “touch every invoice and every line item within those invoices,” Pearson said. This means companies have the ability to audit a significant higher number of suppliers.

“With data analytics, you are now able to cover a much broader, if not the entire, population,” Pearson said.

First Voice

  1. Norman Katz:

    Supply chain fraud can be addressed and tackled by analyzing transactions produced by the same supply chain systems used to enable supply chains today: ERP, EDI, and auto-identification. These same systems and transactions used to judge vendors on performance and risk can be leveraged to detect and reduce fraud perpetrated internally and externally by employees, customers, and vendors.

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