IMPACTS OF SUPPLY CHAIN FRAUD
In the short-term, the impacts of supply chain fraud can include reduced cash-on-hand and lower profits. Small-time frauds may turn into big-time crimes. The more fraud is seen as being acceptable, and even profitable, by employees, the more fraud will be committed by more employees who may have been â€œon the fenceâ€ previously about the commission of fraud. And this attitude may spill over to customers and suppliers who become engaged by employees to commit fraud against the organization.
More fraud is discovered by tips from employees, customers, and suppliers than is discovered by audits.
Source: Association of Certified Fraud Examiners
Fraud early in the supply chain can have a ripple effect and eventually lead to serious product liability claims, product recalls, excessive warranty payouts, negative press, and lawsuits when the fraud results in products that are unsafe or fail to live up to their warranted life. The costs of correction after-the-fact are typically much higher than the costs of prevention, yet too few organizations realize the value in this simple equation. Damage-control costs can be considerably higher than the value of fraud detection and reduction programs, especially considering that some damages may not be repairable.
Organizations can be found guilty of criminal misconduct, just like individuals.
Existence of effective compliance programs can reduce penalties.
Lack of effective compliance programs can increase penalties.
Source: United States Sentencing Commission
Other articles in this series:
Guest Author: Norman Katz
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