Supply Chain Fraud Levels Unchanged for Third Consecutive Year

For the third consecutive year, about 30 percent of Deloitte poll respondents say their companies experienced supply chain fraud, waste or abuse in the preceding year. Yet, just 29.3 percent of the same respondents use analytics to mitigate supply chain fraud and financial risks. Two-thirds (67.1 percent) are confident employees will report any schemes they see in the coming year.

“In my 20 years conducting forensic investigations, trust in employees and third parties is often misplaced,” said Mark Pearson, Deloitte Advisory principal, Deloitte Financial Advisory Services LLP. “As a result, many organizations are trapped in a pay-and-chase model for fighting supply chain fraud —invoices are paid first, then retribution is sought much later when fraud is found, if it's found at all. But, the supply chain forensics leading practice is a comprehensive and proactive, predictive approach tailored to organizational structure and industry sector.”

Two industries saw supply chain fraud rise between 2014 and 2016: life sciences and health care respondents report an increase to 35 percent in 2016 (31 percent in 2014); and energy and resources was 34 percent in 2016, compared to 27 percent in 2014. Conversely, technology, media and telecommunications reported a drop to 27 percent in 2016, from 2014's 33 percent.

Larry Kivett, Deloitte Advisory partner, Deloitte Financial Advisory Services LLP, added, “As distress from falling oil and gas prices puts pressure on the energy and resources industry, many leaders are working hard to avoid leaving any cash on the table. Using supply chain analytics to identify and investigate supply chain financial risks can help stem fraud schemes that we increasingly see in today's challenging, complex and global environment.”

In an interview with SCMR, Kivett added that supply chain fraud, waste and abuse have been around just as long as supply chains have been.

“But today's supply chains often consist of complex networks of multiple legal entities, geographies, industries and subcontractors, making finding nefarious acts incredibly tough to identify using traditional means,” he said. “As analytics technologies are advancing and supply chain leaders increasingly appreciate the bottom line improvements that supply chain financial risk management can have, we believe the instance of supply chain misdeeds will be reduced.”

Pearson noted that, “From a life sciences and health care perspective,” regulatory and legislative pressure is expected to heighten around pricing and transparency for plans, providers, and pharma and devices makers.

“It's a good time to verify that your supply chain is not hiding any unsavory vendors or other fraud, waste and abuse that could cause reputational harm and costly remediation later,” he said.

Additional poll results show:

• Some employee groups pose larger supply chain fraud risk. Project managers and invoice approvers (26 percent) and procurement professionals (24.7 percent) present the largest risk of supply chain fraud, waste and abuse in respondents' organizations.
• Many still don't use supply chain analytics. While 13.7 percent have analytics software, but don't use it, another 19.3 percent don't use analytics for supply chain financial risk management at all.
• Analysis of invoices for fraud prior to payment is low. Just 27 percent of respondents' organizations analyze unpaid invoices for evidence of supply chain fraud, waste and abuse prior to payment.

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