Many businesses are vulnerable to supply chain fraud. They fail to recognize that it exists in most organizations; thus, they don’t appreciate the importance of detection and prevention. Only a few are deploying the kind of data analytics tools necessary to detect fraud or waste. Others do have the tools but are still learning how to use them. Some have no data analytics tools of any kind. As a result, they are failing to submit invoices and contracts with the required level of scrutiny.
Every supply chain has a unique risk profile that stems from a mix of industries, geographies, and cultures. Supply chain fraud becomes more possible where multiple tiers of suppliers are involved. Oftentimes, there is a severed connection between the care in sorting through bids and contracts, and negligence in following them up if they are being met. This makes it difficult to tie back summarized data to a contract.
The best way to reduce supply chain fraud is to be aware of the red flags and other warning signs, which include:
- Corrupt and reliant bidding or procurement processes
- Vague third-party invoice details
- Poor or strained relationship with certain third parties
- Irregular or non-existent right to audit assessments of licenses and suppliers
- Slight to no supervision of proper administrations of agreements with third parties
- Sole-sourced use of third party agreements with no clear explanation or definition of costs and other relevant terms
To eliminate supply chain fraud, monitoring fraud risks is essential. It should be done regularly. Companies can prevent fraud by tracking of labor data, accounting all details, understanding allocation formulas, defining costs clearly, providing back-up documents on costs, and checking if procurement is performed properly – especially by one-time suppliers. They should be smart about what it is they are spending their money on. These simple ways can help them probe supply chain risks and avoid overpaying.