Third-party risk of fraud still a concern, says new Deloitte study

In an exclusive interview with LM, analysts noted that there are few sectors explicitly omitted from or lagging in the evolved use of analytical tools and services to mitigate supply chain risks like fraud, waste and abuse.

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During the past four years, use of analytics to mitigate third-party supply chain fraud, waste, and abuse risk has jumped to 35 percent in 2017 from 25.2 percent in 2014, according to a Deloitte poll.

“It’s encouraging to see more organizations using analytics to help prevent and detect financial abuses within supply chains each year,” said Mark Pearson, Deloitte Risk and Financial Advisory forensic principal, Deloitte Financial Advisory Services LLP. “Unfortunately, increased vigilance doesn’t translate into lower instances of fraudsters trying to perpetrate their schemes. Even the most advanced analytics users should work to constantly evolve their efforts to stem supply chain fraud, waste, and abuse.”

Between 2014 and 2017, an average of 30.8 percent of poll respondents reported at least one instance of supply chain fraud, waste and abuse in the preceding year.  However, some industries saw higher and lower rates of financial abuse.

In an exclusive interview with LM, Pearson noted that there are few sectors explicitly omitted from or lagging in the evolved use of analytical tools and services to mitigate supply chain risks like fraud, waste and abuse. 

“Many forward-thinking companies in different sectors are adopting analytical tools/services to help identify and mitigate supply chain risk,” he said. “However, I have seen organizations in sectors with very complex supply chain issues—such as health care, life sciences and oil and gas—adopt supply chain risk management analytics tools and services more quickly and expansively that most.”

For the third time in four years, consumer and industrial products professionals reported the highest level of supply chain abuse for the past 12 months (39.1 percent), a slight decline from 2016 (39.6 percent). Energy and resources (34.7 percent) respondents also reported a higher than average rate of financial abuse in 2017, dropping a bit from 2016 (35.9 percent). Life sciences and health care professionals noted a marked decline in 2017 (26.3 percent) from 2016 (36.9 percent).

“In the energy and resources industry, I’ve seen complex capital projects rife with bribery, bid rigging, collusion, fraud, and other schemes,” said Larry Kivett, Deloitte Risk and Financial Advisory forensic partner, Deloitte Financial Advisory Services LLP.  “Beyond reducing sole-sourced procurement to manage risk, supply chain executives can also prevent financial abuses by working to improve supplier invoicing timeliness, accuracy, and approval processes.”

Pearson concluded, “From a life sciences and health care perspective, I’m surprised to see such a big drop-off in reports of financial abuse from 2016 to 2017. But, I wouldn’t take that slowdown as a reason for supply chain executives to get comfortable. Even in highly regulated industries, there are still motives for bad actors to commit supply chain abuses. Managing supply chain risk is a constant effort.”


About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]

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