SME White Paper: Supply Chain Fraud

OK, so you thought about Supply Chain Security...but what about Fraud?

On May 3rd, I wrote an article regarding both my LinkedIn network and the impact of the Sarbanes-Oxley Act on supply chains.   Part of that discussion captured feedback from a consultant friend of mine whose former firm once uncovered supply chain fraud as a result of a TMS installation.  Good data makes for a good investigation and is a key to preventing supply chain fraud.

Since 9/11, many companies have focused on C-TPAT certification, securing their physical premises and the tightening of supply chain processes against espionage and terrorism.  However, there remains a latent internal threat of theft, shrinkage, sabotage and graft.   When companies merge, reorganize, or have lay offs, these factors increase.  Given our national state of war, as well as economic and industrial turmoil, prevention of damage by employees gets very "real".

"Is your company so focused on external security threats to your supply chain that you forgot about the threat that exists inside your organization?"

Norman Katz is a Certified Fraud Examiner.  Mr. Katz is also the author of an excellent white paper concerning supply chain fraud.   Katz's paper looks at supply chains, areas of potential fraud and deception and links these to SOX compliance.

For smaller companies, one of the unexpected benefits of Sarbanes-Oxley compliance is the surfacing of irregularities both in records keeping and in management of data.  SOX demands good record keeping...which in Logistics, generally means good systems.   Like a good watch dog, good systems can help keep thieves out of the stock room. 

Of particular interest is the section that defines fraud and reasons why supply chain fraud may take place. I quote below.

What Causes Fraud? "There are many theories and psychological studies as to why a person commits fraud. Some of the different theories propose that fraud is committed due to: The Western culture that emphasizes material goods in association with social status, where we are forced to "keep up with the Joneses". External pressures beyond our control, such as health care costs of sick parents or children, daycare expenses, etc. Pressures we may not be able to control, such as gambling and drug addictions. The lack of good morals and values being imprinted upon a person by their social groups, especially beginning at a young age. Revenge against the organization due to poor pay, being overlooked for advancement, overworked, etc. In regards to supply chain frauds, while revenge against the organization is a strong candidate for perpetuating fraud, another culprit is the internal pressures that build within to either increase performance or decrease task times.  This is typically the result of management pressures to cut costs without providing the necessary tools to achieve the new performance goals, or due to the establishment of unrealistic benchmarks."

Katz's white paper goes on to outline where fraud can occur, ways to look for it and how to prevent it.  Norman Katz runs a consultancy practice in Ft. Lauderdale, FL called Katzscan, Inc.   His practice looks at vendor compliance, supply chain fraud and business turnarounds.

Download The Supply Chain Fraud White Paper!

Eric

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