Safeguarding your business: all about supply chain fraud

In today’s tough economic climate – and as supplier networks and global operations grow ever more expansive and intricate – the risk of supply chain fraud spans financial loss, reputational damage, and significant legal consequences. Indeed, much of the current scandal dogging Boeing is linked to a little-known London-based distributor in London selling thousands of engine components with forged paperwork. 

So what does supply chain fraud encompass? Key forms of supply chain fraud include corruption, bid rigging, counterfeit goods, fraudulent billing, misappropriation of assets, and even cybercrime attacks. 

Key stats

A growth industry

According to one estimation, fraudulent activities will result in global losses exceeding US$348b by the year 2027. While complete elimination of fraud may not be possible, with commitment and the right tools, supply chain fraud’s impact and occurrence can be minimised. 

The greatest source of risk? Employees

According to Deloitte, employees are the top source of supply chain fraud risk (22.9%), followed by vendors (17.4%) and other third parties (20.1%), including subcontractors and their vendors. 

In that same poll, more than a quarter of those surveyed said their organisations had experienced supply chain fraud, waste or abuse during the past year. A similar number said they had no program currently in place to prevent and detect those risks.

Tech helps – and hurts

According to the KPMG Global Survey, 24% of frauds used the business’ technology to create false or misleading information in accounting records. 20% of frauds used business technology to provide false or misleading information via email or other messaging platforms. 

The risks

So, what are the risks to your business if you fall victim to supply chain fraud? Financial losses are just the beginning. Higher insurance costs, reputational damage, and investigation and prosecution expenses can further compound the impact, even jeopardising the viability of your organisation.

Detecting supply chain fraud

With the complex and interconnected nature of modern supply chains, identifying fraudulent activities requires a multifaceted and ongoing approach. 

  1. Conducting thorough supplier due diligence and risk assessment is a key step, helping identify potential sources of fraud before they escalate. Similarly, utilising internal controls – including the segregation of duties and regular audits – can play a key role in ensuring transparency and accountability throughout supply chains. 
  1. Implement proper oversight for employees responsible for vendor maintenance, invoice processing, and payments. Segregate duties where possible to mitigate the risk of internal collusion.
  1. An increasingly common method of supply chain fraud is via advanced data analytics, whereby companies scrutinise transactional data to uncover irregularities and anomalies that could indicate fraudulent behaviour. Leverage data analysis capabilities within your IT department to detect anomalies and irregularities in transactions. Sudden increases in payments to vendors or high-risk transactions should be thoroughly investigated.
  1. Invest in comprehensive training initiatives to educate employees about the risks of fraud and empower them to identify suspicious behaviour.
  1. Employees are an organisation’s eyes and ears, so whistleblower hotlines are a crucial tool for uncovering dishonesty, providing a confidential channel for workers – along with suppliers and other stakeholders – to report suspicious activities without fear of retaliation. These hotlines offer a safe space for individuals to raise concerns about potential fraud, waste, or abuse within the supply chain, encouraging transparency and accountability throughout the organisation. 
  1. Monitor suppliers closely through regular in-person visits and transaction reviews. Consider incorporating audit clauses into contracts to enable thorough compliance checks.
  1. Continuously assess and review your risk management processes to identify potential vulnerabilities and ensure the effectiveness of existing controls.

Proactive approaches work

Rust never sleeps, they say, and neither does the risk of fraud. But by adopting a proactive approach to supply chain integrity, and by implementing robust fraud prevention measures (such as those provided by Report It Now®), organisations can mitigate supply chain risk. 

Vigilance and ongoing monitoring are key to safeguarding your supply chains – along with your organisation’s reputation and financial stability.

To learn more about protecting your supply chains contact us for a free assessment. 

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