Where Does Supply Chain Fraud Happen?

WHERE IT HAPPENS

With an understanding that the supply chain is both internal and external to an organization, supply chain fraud can occur at any link in the chain, for example:

– Fixed Assets
– Trigger Events
– Purchase Orders
– Picking
– Returns
– Packing
– Distribution
– Shipping
– Receiving
– Quality Assurance
– Inventory
– Manufacturing
– Invoicing
– Sales Commissions

Common Supply Chain Fraud Categories:

– Asset Misappropriation – Misuse / Abuse
– Asset Misappropriation – Theft
– Contract & Procurement
– Financial
– Payroll
– Regulatory – Government & Industry reporting

SUPPLY CHAIN FRAUDS

With perpetrator possibilities being both inside and outside the organization, where is fraud likely to occur?

Percentage of Supply Chain Fraud by Area and Median Occurrence

11.2% Customer Service $50,000

1.8 % Human Resources $64,000

14.0 % Sales $96,000

2.8 % Warehouse / Inventory $100,000

2.4 % Information Technology $138,000

30.3 % Accounting $199,000

3.8 % Manufacturing / Production $245,000

20.9 % Executive $900,000

3.0 % Purchasing $1,000,000

9.8 % Other N/A

* Source ACEF: 2006 Report to the Nation

Of particular interest:

 The average loss across these departments was $310,222, with an approximate weighted average (excluding Other departments) of $314,011.

 While Purchasing had one of the lowest occurrences of fraud at just 3%, this department also had the highest median loss at $1M.

 Accounting had the highest occurrence of fraud at 30.3%, but it was significantly lower than several other departments, and its median loss of $199,000 was significantly less than the average median loss.

 Executive management was responsible for perpetrating both the second highest occurrence of fraud (20.9%) and the second highest median dollar amount ($900,000).

Other articles in this series:

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?

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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