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Nearly 1 in 3 Firms Report Supply Chain Waste, Fraud


But many organizations lack detection and prevention programs, a Deloitte survey found.

By University Alliance on July 20, 2015
Survey: Supply Chain Fraud a Reality for Many Organizations

Nearly 29% of organizations suffered fraud, waste or abuse in their supply chains during the prior year, according to a new Deloitte Financial Advisory Services report.

Despite such losses, 26.8% of organizations did not have programs in place to detect and prevent supply chain risks. Respondents told Deloitte that “compliance resource constraints” are the main reason why they aren’t doing more to manage fraud risks.

The survey found that 65.3% of organizations conduct at least some due diligence on third parties, while 29% evaluate supply chain fraud risks presented by third parties once a year or more.

But third parties, including subcontractors and their vendors, aren’t the biggest risk for supply chain fraud, waste and abuse. Employees are identified as the top source for such losses by nearly 23% of respondents in Deloitte’s survey, which was published in May 2015.

There was some good news in the findings: The percentage of companies reporting abuse, fraud or waste was down slightly from the 31% that reported such losses in Deloitte’s 2014 survey.

That previous survey also found that only 26% of supply chain executives were using data analytics tools and processes to help manage their third-party relationship risks. At the time, 13% of those surveyed said they were still learning how to use analytics software and 22% used no data analytics at all.

Firms are urged to look for red flags and other signals of fraud, waste and abuse in order to better focus their prevention and detection resources. Warning signs can include weak bidding and procurement processes, vague third-party invoice details, strained interactions with third parties, and infrequent or nonexistent “right-to-audit” assessments of suppliers.

Deloitte suggested companies take four steps to manage risk:

  • Investigate the background of potential suppliers and partners
  • Utilize software to map potential vulnerabilities in the supply chain
  • Monitor and audit transactions with suppliers for anomalies
  • Create a database of supplier risk factors

Supply chain managers also might turn to the National Intellectual Property Rights Coordination Center (IPR Center), which has launched a new online training program to help professionals guard against counterfeit goods.

The free program instructs acquisition professionals on methods for identifying fake products and dealing with those goods if they enter the supply chain.

 

Category: 2015 Headlines