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How to Prevent Supply Chain Fraud

iStock_000078399775 Tips To Reduce and Catch Supply Chain Fraud Managing your supply chain is crucial to operating a successful business, but actually keeping track of everything that happens along the way is almost impossible. By definition your supply chain is where things come in and go out of your company as you create and then sell your product or service. Along the way there are many opportunities for fraud. Supply chain fraud can take many forms, from employee theft to dishonest vendors, and counterfeit goods. More than a quarter of of the companies surveyed in a recent Deloitte study, say they have experienced supply chain fraud, waste, or abuse in the past year. The same survey found that around a quarter of companies also don’t have a program in place to detect and prevent fraud risks. [su_divider top="no" size="2"]

Related Article: 4 Simple Supply Chain Strategies That Will Cut Costs

[su_divider top="no" size="2"] According to Larry Kivett, a partner at Deloitte Financial Advisory Services, “With reputational, litigation and regulatory repercussions hanging in the balance, companies can’t afford to dismiss supply chain fraud prevention and detection. Schemes constantly evolve and come from every direction, making vigilance crucial.” You’ll never be able to fully prevent supply chain fraud. Thieves will always come up with new tricks and techniques. If you make use of the latest technology and put in place effective company programs and policies, you can do a lot to minimize the opportunities for fraud and to catch it quickly when it happens.

Take control of your stockroom and assets

Employee theft cost retailers in the United States about $18 billion, accounting for 43% of lost revenue, according to the latest Global Retail Theft Barometer. Employee theft is also a problem for non-retail businesses. In just one recent example, a former employee had stolen as much as $400,000 from his employer. [Tweet "Employee theft cost retailers in the United States about $18 billion."] At the heart of any fraud, including employee theft, is the fraud triangle, perceived financial need, opportunity, and the ability to rationalize the behavior. There is no real way to prevent rationalization and perceived financial need (though we like to think that is what salary is for). However, you can do a lot to reduce opportunity and perceived opportunity for theft by using asset and inventory management technology and tools. Using asset tracking software and barcodes can be a very effective way to head off employee theft. Asset tracking, and similar tools for inventory tracking, allow you to keep track of assets and inventory throughout your supply chain. This means you know where an item is, how it got there, and who had access to it last, among other data. When employees know you know this their perception of opportunity decreases along with their ability to get away unnoticed. If your company uses a lot of expensive equipment you should be keeping it in a tool crib. Tool cribs are spaces where you store equipment and using barcodes and a check out system you can easily monitor who has a piece of equipment at any given time. For retail operations, keeping your stockroom locked and monitored is crucial. Reduce open access to unmonitored inventory stockpiles and make sure to use barcodes to track inventory as it moves along the supply chain. If employees know that inventory stocks are updated in real-time they know their chances of getting away with theft are slim. No one wants to live in a police state, under constant surveillance. Using barcode technology and effective policies aren’t just about monitoring employees, they can also ease employee burdens and anxiety. Barcodes save time on data entry used to track inventory and perform forecasting and make it easier to keep track of asset values for accounting. Because of their myriad benefits, these tools make theft more difficult without appearing as a control or surveillance tactic. iStock_000044401706

Achieve supply chain visibility

Supply chain visibility is a critical part of preventing fraud. This involves monitoring the flow of inventory and assets along the supply chain and increasingly relies on tools like barcode technology. Good and honest vendors won’t shy away from putting in place transparent policies to track inventory and assets. Kivett from Deloitte explains, “Vendors and other third parties have become accustomed to filling out surveys and engaging in discussions about their practices within supply chains. In our experience, individuals and groups who have nothing to hide work hard to clarify misunderstandings and improve relationships; those hiding illicit acts may not.” Fraud from the outside often involves help from the inside. Mark Pearson, a principal at Deloitte Financial Advisory Services, told EPS, “Don’t fall into the ‘it can’t happen at my company’ trap. Forces outside your company aren’t always to blame. Employees often leverage transactions involving vendors and third parties to their own benefit via supply chain fraud–and when collusion is involved, detection and prevention is quite difficult.” Putting in place some of the following practices can help achieve greater supply chain visibility and reduce the risk of fraud:
  • Create clear policies for bidding and contract negotiations. Make sure employees who negotiate understand “conflict of interest” and “gifting” guidelines, and enforce them strictly.
  • Use barcode technology to track inventory and assets along the supply chain.
  • Make sure your inventory or asset database is updated in real-time and accessible to multiple users, you don’t want just one person to have access to the books.
  • Perform regular and surprise audits on your inventory and check every order to make sure all details are accounted for.
  • Perform due diligence on potential business partners of any kind and make sure you know who you are working with.
  • Put in place clear guidelines for your partners, explaining what you need on invoices and how you want to track their billings.
  • Develop long and strong relationships with suppliers and vendors. Try to get to know the people you work with. Visits to partners and their operations can also be a good way to learn more about them and their business.
  • Test your products to make sure that vendors and suppliers are maintaining the quality you need and the items are not counterfeit.
At the end of the day, preventing fraud is a full-time commitment that never ends. Constant vigilance is required and absolute security never guaranteed. But with a system in place, at least you can sleep securely knowing that your company is monitoring its supply chain and fraud or theft will be detected when it occurs.