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Supply Chain Fraud: How To Stay a Step Ahead of the Scammers

Supply chain fraud is in the spotlight. A report from the Australian Competition and Consumer Commission (ACCC) showed a 1,174% increase in false invoices led to $8.6 million in losses last year.

By taking control of a legitimate business’ online accounts or email, scammers send fake invoices to divert payment to their own bank accounts. That’s online fraud.

Goods could also be stolen in transit. For example, criminals have also used forged documentation to pose as subcontractors or drivers to ‘hijack’ supplies en route.

Supply chain fraud and its consequences

False invoices or poor security practices aren’t the only causes of supply chain fraud. According to the Australian Cyber Security Centre, those risks can result from foreign control or interferences, a lack of transparency, or unjustified continued access and privileges to your systems. Fraud also encompasses lies about the origin of goods, counterfeit products, even smoke and mirrors about financial and inventory records. Using paperwork and outdated technology doesn’t make it easy to track goods on your supply chain either.

The lure for fraudsters is the size of the supply chain market – globally it’s expected to hit more than AU$34 billion this year, says Statista. By the way, globally, food and beverage theft from supply chains is the highest risk.

The supply chains that Australian businesses and organisations use have become increasingly complex, involving many players, transactions, and interactions. It’s even prompted the Australian Government to set up an Office of Supply Chain Resilience to identify and monitor critical supply chain vulnerabilities.

Why could supply chain fraud be a problem for your business?

  • Risk of selling unsafe, non-compliant products resulting in product recalls, contaminated products, delivery delays, and legal ramifications
  • Damaged business reputation
  • Financial losses from the above
  • High insurance premiums
  • Customers unable to verify if the products they’ve bought are authentic, and
  • Consumers unable to trace contaminated food to its source.

Check out these four tips that your business can embrace to protect your supply chains.

Doing supplier due diligence

Typically, multiple employees will collude and collaborate to engage in supply chain fraud. This allows them to bypass protocols and checks businesses have in place.

Your key guide on preventing, detecting and responding to fraud risks is the Australian Standard AS 80011:2021 Fraud and Corruption Control. It suggests steps to vet suppliers including:

  • Search the company register, trading address, and telephone listing to verify
  • Look up ABN and verbally confirm bank details
  • Check directors’ personal details
  • Query their credit rating
  • Search bankruptcy and disqualified directors, and
  • Scout social media and online sources, including Scamwatch and for court cases and judgements.

Use the standard to create (or update) your comprehensive checklist for onboarding suppliers.

Internal controls

Observe the following to identify and prevent supply chain fraud:

  • Establish policies and procedures, including for staff to sign invoices verifying the receipt of goods or services
  • Create a conflict-of-interest framework for staff and contractors
  • Train staff regularly to be fraud-aware and ensure they know your expectations about ethical conduct
  • Rotate and separate duties of staff in procurement roles
  • Only approve expenditure once financial delegate ‘paperwork’ is complete
  • Be alert for employees not taking leave, as it may indicate their fear that replacements will uncover their fraudulent activities
  • Set up a whistleblower hotline
  • Check your financial records and inventory for ‘messy’ credits, transfers, errors, connections, or adjustments, and
  • Invest in fraud detection technology to reduce manual checking and prevent duplicate contracts from being entered.

Leveraging technology

Advanced technology can also help your business fight fraud. Blockchain, the Internet of Things, as well as data analytics offer supply chain:

  • Transparency
  • Traceability, and
  • Verification.

Investing in technology can also reduce the risks of substandard or counterfeit items becoming part of your production process.

Using blockchain and verifiable credentials can securely record transactions permanently and in a way that can be verified. As part of its National Blockchain Roadmap, the Australian Trade and Investment Commission has set up a working party to explore blockchain frontiers in supply chains. The European Union is further down the track. You can check out their Blockchain for Supply Chain Transparency report.

Protect your business with crime insurance

You can also protect your operations from business-related crime with tailored cover. A business crime insurance policy can defend you against losses from such crime including:

  • Internal Crime:
    Protection against financial losses caused by fraudulent activities or dishonest actions of employees, such as theft of money, securities, or property.
  • Internal Crime:
    Safeguarding against various external threats, including:
    Third-party computer crime: Coverage for losses resulting from cybercrimes committed by external actors.
    Third-party forgery: Protection in cases where a third party forges documents, leading to financial losses.
    Third-party counterfeiting: Coverage for losses due to counterfeit currency or financial instruments.
  • Theft, Physical Loss, or Damage:
    Coverage for losses resulting from theft or physical damage to money, securities, or property, including situations where a third party permanently takes these assets.
    Protection against the destruction or disappearance of money or securities.
  • Client Loss:
    Insurance coverage extends to situations where the insured is entrusted with the care, custody, and control of clients’ money, securities, or property, and such assets are lost under the main policy.
  • Fees, Costs, and Expenses:
  • Coverage for various expenses incurred in the aftermath of a covered loss, including:
    Auditor fees or investigation costs associated with identifying covered losses.
    Legal fees for defending against demands or claims resulting from a covered loss.
    Reasonable costs to restore the insured’s computer systems following a covered loss, which can be crucial for business continuity and recovery.

The theft section of your commercial property insurance may only cover you for theft of your contents or stock. Money or negotiable instruments can be insured separately under a Crime policy. However, a business crime policy can be part of a tailored package of insurance policies for your unique business. Talk to us to ensure your cover is appropriate.


Article Supplied by OneAffiniti

Photo by Grapeimages on Unsplash