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Top Four Tips to Protect Your Supply Chain Against Fraud

Nov 13, 2017

The purchasing department in an organization is one of the biggest cost centers involving large sums of money, multiple transactions, and numerous contracts. With such vast amounts of money involved, there is always a chance that someone would unethically or illegally try to take a share of the pie. As a result, fraud and corruption in the procurement function including dubious vendor relationships, illicit rebates, kickbacks, pilferage, and counterfeit goods are widespread across all organizations. Although it may not be possible to monitor all activities fully and eliminate such risks, procurement organizations can establish practices and protocols toSE_Demo2 decrease the incidence of such procurement irregularities.

Tips to Tackle Supply Chain Fraud

Use of Automated Invoicing

One of the most common supply chain fraud occurs during the invoicing process in the form of bid-rigging, bribery, collusion, and payments fraud. Since all particulars are manually entered, employees may have the motive to tamper with the exact details to make a small fortune for themselves. Such fraudulent invoicing can cost companies millions of dollars. Companies can leverage technology such as automated processing and invoice to eliminate such fraud. Automated processing and invoicing coupled with automated 3-way matching allows the system to verify that invoices match the purchase order and will flag invoices that do not have the corresponding order. Additionally, it can also create audit trails to highlight potential accounts payable fraud.

Using Asset Tracking System

An alternative kind of fraud that takes place within an organization is that of pilferage and employee theft. Such problems can be tackled using effective asset tracking including the use of barcodes and RFID tags. Such system will provide vital information regarding the location of the product and employee who handled the product last. This way, if any item or products are missing, the company can point out who is accountable for it. By tracking inventory across all points of the supply chain, companies can significantly minimize inventory shrinkage.

Develop a Fraud Response Plan

Many business owners feel that they have experienced employee theft or fraud. However, only a small majority of cases gets reported to the authorities, and companies even prefer to ignore such instances. This happens because such companies are not expecting incidences of supply chain fraud, and when they witness one, they are not well-prepared to deal with it. Having a robust fraud response plan and communicating it to the related stakeholders can minimize fraudulent activities and bring structure to organizational functioning.

Monitor the Procurement Process

If the attitude of the procurement department towards suppliers is lenient, then suppliers may become complacent and steer their focus away from quality. If the suppliers operate with little or no supervision, they might end up taking advantage of various schemes that can be contrary to the interests of the buyer including producing counterfeit goods, selling finished goods at lower prices, offering bribes, sub-contracting jobs, tax evasion, and producing a fraudulent financial statement. Performing and scheduling surprise inventory audits can reduce the opportunity for theft. Additionally, companies must also perform routine checks for product quality, non-delivery, repeat delivery, purchase orders, and actual deliveries to mitigate supply chain fraud.

For more information on supply chain fraud, bid-rigging, pilferage, kickbacks, and counterfeit goods:

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