The COVID-19 pandemic brought many changes to global markets. Production of goods and services slowed down dramatically due to company protocols, local laws, labor shortages, and other predicaments. Fraud is another factor business leaders have to deal with daily.
This guide will show executives three common types of fraud and three ways to reduce them.
What Types of Fraud Are Most Common?
Fraud can occur in the supply chain from the beginning to the end of the process. A dishonest employee or outsider can find ways to act in their interests, causing backlogs and headaches for the company.
These three types of fraud are among the most common in supply chains and ones that business leaders should watch out for.
With today’s technology, criminals can be sophisticated in committing fraud. However, sometimes it can be as simple as stealing. The problem can come from outside thieves looking to steal items from a truck or warehouse, but that is not the most prominent reason. One study found that employee theft accounted for 90% of significant losses in companies.
Businesses selling high-priced goods like electronics and designer clothing are especially vulnerable to theft. The global chip shortage has significantly impacted the gaming industry, leading to PlayStation 5 consoles being a target of thieves worldwide. People are stealing PS5s off trucks and porches, and sometimes the problem comes from employees within the supply chain.
Companies can catch thieves and their employees stealing, but sometimes the crime is more subtle and challenging to identify. Bribery is a problem for businesses and can occur at all levels.
A related issue with bribery is people getting kickbacks for the deals they make.
Bribery typically involves collusion between two companies, and external financial incentives entice companies to choose one supplier or contractor over another.
Bribery causes multiple headaches for businesses and the supply chain. In most countries, the federal and local governments have anti-bribery laws in place and will prosecute wrongdoing. A company using a supplier found guilty of bribery may have to switch to another, causing supply chain disruptions, unwanted backlogs in production, and potential legal issues.
The pandemic brought issues to the supply chain with backlogs and worker shortages, but another significant impact has been the increase in cyber theft.
Cybercriminals have become better at phishing, malware, and ransomware attacks. These attacks come with the rise in remote work and put companies at risk. Employees may use their own hardware with less protection than the computers they’d use in the office.
Since 2020, cyber threats have increased dramatically. About 81% of companies worldwide say they saw an increase in cyber threats and 79% say a cyber incident caused downtime during a peak season. These cyber incidents are critical for companies because the fraudster doesn’t have to have direct contact with company property or an employee. Cybercriminals can engage in fraud from anywhere in the world.
How Can Executives Fight Fraud?
Whether bribery, theft, or cyber crime, there are multiple ways fraud disrupts supply chains and costs companies time and money. How can executives combat this problem? What strategies can businesses implement to make their processes more secure against criminals? Business leaders can use the following strategies to fight back against fraud.
Reporting employee misconduct can be a challenging task for many people. They may feel conflicted and unsure of what they see. Creating a system of accountability for everybody can raise levels of trust and respect inside any office, warehouse, or organization.
There are numerous ways companies make their reporting systems easy and accessible to everybody. They can put the filing online in a designated web portal or have employees write a complaint to a specific email address. Opening this system 24 hours a day ensures a worker can file a complaint without feeling pressure or anxiety that someone is watching them.
Reporting theft is a practical way to prevent it from happening in the future. Fraud occurs in private industry, governments, and other sectors, and one form of accountability is whistleblowers. A whistleblower is someone who brings a claim under the False Claims Act of 1863. These claims come from current and former employees with confidential information who elect to report wrongdoing.
Whistleblowers could come from within an organization or they could be one company calling out another. For example, a business could file a whistleblower complaint against another company conducting a billing scheme. Price gouging is a common form of fraud, and companies should use whistleblower laws to their advantage to reduce fraud in the supply chain.
Asset tracking is an excellent way to reduce fraud. Waste and fraud can occur within inventories so that proper management can come to the rescue. Companies can track assets using barcodes to stay one step ahead of thieves, including the ones coming from within the organization. Barcode tracking is a way for businesses to prevent fraud and save time. Managers using it don’t have to enter data manually if the computer can track them.
Companies leveraging technology find significant benefits to supply chain functions and their bottom line. One way a business can improve efficiency and reduce fraud is with telematics. This method involves automated data collection and transmission. Telematics is prominent in industries like long-haul trucking because it enhances safety with vehicle fleets.
Vehicles fitted with telematics devices can track statistics like speed, routes taken, sudden starting and stopping, and more. This technology can save a company money by monitoring how long drivers sit idly and optimizing paths, meaning quicker arrival times and less money spent on gas. Telematics can reduce fraud with fleet tracking, dashcam footage, and asset recovery with GPS tracking.
With cyber theft on the rise, one way companies can fight back is with blockchain technology. Businesses in many industries have started using blockchain because of its reliability in protecting information. Using blockchain is cost-effective and decreases fraud because it records transactions that fraudsters cannot secretly alter once they record it. Any change made in the blockchain is available for others to see.
Every transaction on the blockchain has a timestamp and a chronological logging system. This feature prevents theft in the supply chain because no fraudster – inside or outside – can duplicate transactions. Companies can reduce costs with the blockchain because of its automation capabilities. Smart technology in the form of blockchain contracts can monitor transactions. Blockchain means less reliance on third parties and less room for fraud.
Finding and Fighting Fraud in the Supply Chain
In today’s world, anything can affect the supply chain. Fraud happens daily, and a pandemic can wreak havoc and turns industries upside down. Fortunately, there are ways to locate and mitigate fraud. Executives should watch for these three types of fraud and use these three tips to reduce theft in their supply chain.
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