Presentation outlining processes to counter fraud in FMCG or commercial component environment

1. Fraud – A controllable
cost
Edward Pacey FICM FACP
EP Credit Management & Consultancy Ltd

2. Commercial Fraud
Commercial fraud was at one time viewed as
opportunistic. In an electronic age with fast, slick
business transacting it has developed and matured
into a sophisticated process, patient in its approach,
very knowledgeable of the sector it targets and quite
adaptable to process check implementation. It has in-
depth knowledge of the supplier and industry and
presents new challenges in management and
prevention.
“You only find out who’s swimming naked when the
tide goes out”
(Warren Buffet)

3. Why it happens
 Vast bottomless market that will accept product/goods, no
questions asked
 Volatility of demand and pricing – market pressures
 Fast obsolescence of some product e.g.
Technology/Telecoms/Media/FMCG
 Ease and speed of transactional business but slower and
inadequate control processes
 Lack of Police interest or application either pre or post
fraud detection
 Embarrassment factor – few will pursue or admit to fraud
 The “greed” factor
 Ignorance of the risk
 No cohesive risk management strategy or control
 E-commerce, email and web based applications
 High Sales staff turnaround
 Unrealistic Sales targets
 Vendor pricing and discount structure

4. When it Happens
 Late on Friday
 Month end
 Quarter end
 Year end
 Restricted supply chain/inventory off-load
 Recessionary periods
 Pressured Markets with suppressed sales activity
 Seasonal periods
 New product launches
 When control processes are not evident

5. Manage the Risk
 Ensure Credit Policy incorporates a detailed
operational process designed to manage the risk of
fraud and critically, ensure everyone in the
organisation is aware of the process and regularly
reminded and updated
 Set out specific areas of responsibility, process
checks and regular audit to ensure compliance
 Areas covered should include account set up,
database management, purchasing, despatch,
warehousing, freight forwarders, finance and
recruitment of new and temporary staff
 Understand the risk of commercial fraud may be
internal as well as external – both require equal
attention

6. Safeguards
 Never set up an account until you have
processed/checked this fully
 Scrutinize the application in terms of quality and
completeness
 Always validate data supplied through a third party
provider
 Consider references given and general content
 Check and validate any delivery address point
 Be wary of mobile phones that remain unanswered
 Question applications from alternative fax numbers
 Consider the applicant’s profile
 Remain conscious of identity theft and company hi-
jack
 Be vigilante of anomalies e.g. odd looking email
addresses
 Be cautious of long firm fraud tactics
 Implement efficient dispute management control

7. Safeguards
 Is the quantity out of proportion with normal order
values?
 Is the product in short supply or push to reduce
inventory
 Is the margin unusually high or ridiculously low?
 Is it suddenly to be delivered to another address or
collected?
 Is product ordered not the type usually supplied to
this client?
 Is the order unsolicited
 Is the delivery to address out of sync?
 Was there no “quibble” on pricing and quotation?
 Is the order confirmed in writing?
 Is the buyer familiar or new?
 Are sales over-performing against target?

8. Safeguards
 In cases of pre-payment, do not release goods until
funds are in your account and cleared
 Where bank drafts are issued, validate the beneficiaries
name and value
 Adopt a policy of restricting first time or large value
credit card payments
 Avoid using telephone numbers on account applications
to validate approaches, orders or payment
 Never allow collection of large first time order
 Do not allow last minute changes to delivery points
without thorough checks
 Validate delivery to addresses
 Restrict database management menus internally
 Consider carefully financial information filed (too early
or inconsistent)
 Note sudden changes to registered office and director
details
 Do not cut corners despite intense sales pressure

9. Safeguards
 Brief Sales and other relevant areas frequently on the risk
of fraud
 Obtain faxed written confirmation of address changes and
validate with call back
 Regenerate inactive/lapsed credit accounts
 Retain detail of detected fraud, build your own database
 Subscribe to third party fraud prevention networks
 Share data with others and pool information
 Work with business information provider networks
 Use Credit forums to share experiences and develop
counter measures
 Do not amend supplier bank details without full
qualification and validation
 Read emails fully, including the originating email address
 Ensure no conflict of interest in a Sales environment
 Separate purchasing and sales functions
 Check and validate any new suppliers

10. Fraud – learn from mistakes