Fraud in Supply Chains

While more than one-quarter of respondents to a recent Deloitte poll said they experienced supply chain fraud, waste or abuse in the past year, about the same number said they had no program in place to prevent and detect risks. Not enough is being done from a compliance perspective.

Employees were identified as the top source of supply chain fraud risk by 23 percent of poll respondents, before vendors (17 percent) and other third parties (20 percent). While fraud is more likely to occur with third parties, losses are typically larger when employees are involved. The collusion tends to be more financially damaging because employees can use insider knowledge to help conceal their schemes.

Businesses are turning to data to manage vulnerabilities that may be present in their supply chains. With the introduction of advanced analytics they can gain insight into identified instances of fraud, and manage risk in advance with the help of a myriad of indicators.

GCs should team with their CIOs or Chief Information Security Officers to coordinate efforts using fraud detection/prevention tools. A clear understanding of the existing data system will enable development of useful analytical queries.

Steering management away from narrow cost/benefit analyses when gauging the merits of a fraud prevention program can serve GCs well. Make the case for enterprise risk mitigation and other non-quantifiable benefits associated with added transparency. These include lower employee turnover, higher morale and improved efficiency and productivity.