Supply chain fraud is a widespread and increasing global business risk for organizations. According to the Association of Certified Fraud Examiners (ACFE), 83.5 percent of fraud cases it surveyed in 2016 featured asset misappropriation schemes, which include fraudulent billing and disbursement schemes.1 In today’s global market, collusive kickback arrangements, bribery and corruption, and bid rigging are increasingly common and becoming harder to detect.
Modern supply chains are more vulnerable to fraud due to their global reach, the depth of supplier networks, the sheer number of transactions or volume of financial activity, the increasing resource needs to combat fraud, and the complexity of information technology systems. Every link in a supply chain represents opportunities for fraud or misconduct.
However, many companies do not take supply chain fraud prevention seriously. According to the ACFE, 44.7 percent of the fraud cases it surveyed were discovered through a tip or by accident, while only 39.2 percent of the fraud cases were discovered by Internal Audit, management review, account reconciliations, or document examination.2
Companies that do more to protect themselves from supply chain fraud are less likely to suffer the consequences. This paper discusses the scope and impact of supply chain fraud, the areas of vulnerability in the supply chain, and key measures to prevent and detect supply chain fraud.