Definition of Fraud

DEFINITION: FRAUD

There may be fewer definitions of fraud available than those for the supply chain, but much like defining the supply chain, I feel that there are enough in existence such that adding one more for this purpose will not dilute or disrupt the other definitions out there.

A purposeful deception, misrepresentation, or concealment of facts intended to cause injury or loss to another party, typically for the sake of one’s own direct or indirect gain.

The employee’s gain need not always be direct. An employee who falsifies data in a report to a regulatory agency because the employee is loyal to the organization and wants to protect the employer from possible fines or legal action is still guilty of committing fraud.

Executives, directors, managers, and supervisors cannot simply turn a blind-eye with regards to the actions of those reporting to them – management is responsible for the employees reporting to them and is assumed to have knowledge of their actions.

It is important to emphasize that we are all human and subject to committing errors. It is when the “errors” are done on purpose and with the intent to benefit, either indirectly or directly, that fraud is likely to exist.

Fraud in the supply chain is not necessarily related to “lowest cost”. It would be a mistake to assume that fraud exists just because, for example, the purchasing manager opts to conduct business with a supplier whose materials or services are not the cheapest. In fact, good supply chain practices necessitate relationships with reliable suppliers, where the characteristics of a “reliable” supplier should include quality (of materials or services) delivered on time. And it’s these solid supplier relationships that can pay for themselves many times over when the customer has an emergency requiring help from their suppliers.

However, all things being equal, the purchasing manager who opts to conduct business with a particular supplier because of gifts, loans, or kickbacks may be guilty of committing fraud. But there may be a fine line between a gift and a loan or kickback, especially if the organization did not outline what is and is not acceptable supplier behavior in regards to gifts and monies to employees. Executive management must set the organization’s tone and lead by example, taking care to communicate in writing directives to all those involved.

Other articles in this series:

Understanding and Attacking Supply Chain Fraud

An Introduction to Supply Chain Fraud

Supply Chain Fraud and Sarbanes-Oxley

COSO – Sarbanes-Oxley and Supply Chain Fraud

Definition of Supply Chain

Definition of Fraud

Who’s Involved in Supply Chain Fraud?

What Are the Causes of Supply Chain Fraud?

Where Does Supply Chain Fraud Happen?

Assessing the Impacts of Supply Chain Fraud

Methods of Detecting Supply Chain Fraud

Dreaded Shrinkage: Bottomless Pit or Grave?

Importance of Internal Assessments Before SOX Audits

Budgeting For the Repercussions of Supply Chain Fraud

Summarizing Challenges Surrounding Supply Chain Fraud

Guest Author: Norman Katz

Copyright © Katzscan, Inc. – Source: Supply Chain Fraud White Paper

Telephone: 954-942-4141  www.katzscan.com  Since January 1996  www.supplychainfraud.com

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