The financial cost of supply chain-related fraud has been on the rise over the past year, illustrating yet another reason why companies need to utilize automated data collection software.
According to the latest statistics compiled by the U.K. branch of global advisory firm KPMG, the value of fraud during the first six months of this year is up 38 percent from the first half of 2012. Supply chain-related issues are one of the main drivers of this upward trend, totaling £61 million (approximately $240.3 million) so far this year. In comparison, costs related to supply chain fraud during the first six months of 2012 equated to approximately $1.49 million.
In addition, KPMG noted that supply chain fraud was prevalent across just about all industries, threatening lives as well as livelihoods. Two of the most notorious examples from this year so far that the advisory firm cited include the European horse meat scandal and an incident in which a company sold fake bomb detection equipment to the Iraqi government.
"The risk to safety and therefore life through supply chain fraud can have serious operational and reputational consequences which often get overlooked as a result of financial impact being a primary focus," said Hitesh Patel, U.K. Forensic Partner at KPMG. "While procurement functions seek to do relevant due diligence checks on potential suppliers, fraudsters are increasingly getting smarter at circumventing traditional procurement processes and controls. Organisations need to make the most of the numerous data sources available and overlay that with the information they have on a third party they plan to do business with."
Using Automated Data Collection to Fight Deceit
As supply chains become globally distributed, the likelihood that a business will deal with fraud unfortunately rises. With more endpoints to account for and oversee, the less likely it is that legacy oversight methods will prove successful. However, according to a report prepared by the Australian wing of accounting services company Deloitte, a business can take a few steps to dramatically decrease the likelihood that it will become a victim of supply chain fraud:
- Get to know suppliers: Often, questions and issues arise not from secondary suppliers, but from tertiary or quaternary firms. However, even though these companies may be distantly removed in the supply chain, their decisions and actions could still have massive ramifications for seemingly disconnected companies. As a result, businesses need to make sure that their partners only use trusted suppliers to mitigate this risk.
- Actively monitor everything: This is where automated data collection is especially handy, as Deloitte said effective oversight is key to preventing fraud. Companies that are able to gather more information about its goods within the global supply chain are typcially better able to reduce fraud-related risks. However, relying on third-party firms or manual oversight will only lead to headaches down the road because both are frequently prone to error, which is why solutions such as barcode software are especially ideal at providing the level of trust companies need from their supply chain data.
- Have a worst-case scenario in place: No matter how well a company plans ahead and accounts for these issues, supply chain fraud cannot be completely eradicated. As such, organizations should account for this inevitability accordingly. For instance, automobile manufacturers can use data collection systems to see where recalled cars were sent and take the proper steps to remove potentially faulty vehicles from the marketplace.
"Whilst the risk of fraud cannot be eliminated entirely, it can be greatly reduced with the right approach," the report's authors noted.
In addition, Deloitte noted that although fraud claims relating to China and other Asian nations may receive the most notoriety, all businesses need to properly account for these risks. KPMG reported a global increase in fraud claims, illustrating why just about every organizations can benefit from operations and supply chain management software.