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How to Detect & Prevent Fraud in SCM pdf
1. Supply Chain Risk Management
August 15-16, 2013 1:00-6:00 PM
The Heritage Hotel, Manila
IMPACT MANAGEMENT SYSTEMS
EMAIL: CONSULTANT.DLS@GMAIL.COM
2. Rey
M.
De
Vera,
DSM
Management
Consultant
Specialized
in
the
areas
of:
Ø
Supply
chain
management
and
audit
Ø
Fraud
detection
and
prevention
in
SCM
Ø Productivity
improvement
and
cost
effectiveness
Ø
Strategic
planning
and
leadership
development
Ø
Change
management
and
organization
development
3. n
n
n
n
n
Rey
had
worked
for
Shell
Chemical
Arabia,
the
Company
that
operates
from
one
of
the
world’s
largest
and
most
competitive
petrochemical
complexes
in
KSA.
Dynetics
Semiconductor
Philippines
Dubai
Aluminum
Compnay
Ltd.,
UAE
Arinco-‐Aramco’s
Oil
Projects,
KSA
Halliburton
International-‐K
B
R
4. n
Had worked as a management consultant for De La
Salle-College of Saint Benilde, Manila, Black & Decker
Philippines, and Daiichi Electronics Manufacturing
Corporation.
n
Post Graduate Diploma in Supply Chain Management
from De La Salle-College of Saint Benilde, Manila.
n
Post Graduate Diploma in Organization Development
from De La Salle-College of Saint Benilde, Manila.
BSBA-Management from University of the East,
Manila.
n
6. What Is Fraud ?
n A;
Deceit, Trickery; specifically
intentional perversion of truth….
n B: an act of deceiving or
misrepresenting
n Synonym:
Deception.
n Fraud cannot be by accident or
negligence.
7. n Fraud
is an intentional deception
made for personal gain or to
damage another individual;
n the related adjective is fraudulent !
8. What Is Corruption ?
Practice” means the
offering, giving, receiving or
soliciting, directly or indirectly, of
anything of value to influence
improperly the actions of another
party.
n “Corrupt
n Bribery
and Kickbacks
IMPACT MANAGEMENT SYSTEMS
9. What Is Collusive Practice ?
Practice” means an
arrangement
n between two or more
parties designed to
achieve an improper
purpose, including
influencing improperly
the actions of another party.
n “Collusive
10. Fraud Facts
n
30% of all business failures are due to fraud.
n
As much as 80% of fraud is never detected.
n
Only 70.6% of fraud is ever reported.
n
A survey of 1,246 people showed 1/3 had
attempted to commit fraud in the last 12
months.
n
48% said the fraud was successful.
NTT Canada Government
11. $ 650 Billion Annual Losses
n On
average 5% revenue
n Fraud
losses by men are 2 times more
than women.
n The
most costly losses are with
organizations less than 100 employees
12. Definition of Occupational Fraud
The use of one’s occupation for
personal enrichment through the
deliberate misuse or misapplication
of the employing organization’s
resources or assets.”
n “
14. High Risk Areas ?
n Purchase
Order and Invoice Frauds
n Picking and Packing Frauds
n Return Frauds
n Distribution and Shipping Frauds
n Receiving Frauds
n QA and Manufacturing Frauds
n Inventory Frauds
15. SCM Code of Conduct…
n
The application of Code of Conduct in our
organization is to end-users, requestors,
buyers, vendors, QC auditor, and ISO
Quality representatives.
n
Vendor scorecards and metrics only work if
measured accurately.
n
SPEAR Program works best
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15
16. Reduce Supply Chain Fraud by
Detecting it.
1. Make an assessment of your supply
chain in whole or in part, to determine
the very best of your abilities.
2. Identify the areas of concern, and also
include based on the depth and breadth
of your investigation, solutions and
recommendations.
17. n Detection
of supply chain fraud
relies on the ability to cross-check
distinct pieces of information
n Fraud
can be perpetrated via various
collusion scenarios and along any
link in the internal and external
supply chain
18. n Employees
can be forced into
perpetration frauds in order to keep
their jobs.
n Management is the real guilty party not
the employees.
n Failure to govern accordingly, the failure
to bring integrity into your company’s
supply chains will result in an
environment where frauds
is able to exist and even grow.
19. 4 Elements in Fraud Schemes
1. The activity is clandestine.
2. The activity violates the perpetrator’s
fiduciary responsibility.
3. The activity serves to financially benefit
the perpetrator.
4. The activity costs the organization assets,
revenue or reserves.
20. Asset Misappropriations
n
87.7% of all Asset Misappropriations
involve cash.
n
Cash Receipts (33.1%)
n
Cash Disbursements (86.3%)
n
23.4% of all Asset Misappropriations
involve other assets like inventory,
information and securities
IMPACT MANAGEMENT SYSTEMS
21. 4 ways a perpetrator can use his or her
influence to obtain undisclosed
personal benefits during a business
transaction:
n Bribery
n Illegal
gratuities
n Extortion
n Conflicts of interest
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22. The Cycle of SCM
Requisitioning
Issuance
Buying
Delivery &
Storage
23. ‘Red Flag’ in SCM
n Requisitioning
n Purchasing
n Receiving
& Inspection
n Issuance & Delivery
n Usage or Consumption
n Replacement & Replenishment
n Returns
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24. Why Products Move Out
n Issuance
n Transfer
n Sales
n Wrong
Specs from Vendor
n Replacement
25. Breakdown of Corruption Schemes
CONFLICT OF INTEREST
BRIBERY
40.0%
EXTORTION
25.0%
ILLEGAL
GRATUITIES
25.0%
77.1%
26. Initial Detection of Occupational
Frauds
TIP
42.2%
CONTROLS
18.9%
ACCIDENT
16.7%
INTERNAL AUDIT
13.3%
EXTERNAL AUDIT 6.7%
POLICE
4.4%
NNT Canada Government
30. Investigating Fraud
n
n
n
n
n
n
Male
(61%)
Accounting
(30.3%)
Manager
(41.2%)
Been
with
the
company
for
over
10
years
(37.7%)
Has
an
undergraduate
degree
(33.4%)
Is
between
41
–
50
years
old
(34.6%)
No
previous
criminal
record
(87.9%)
National Institute of Justice , USA
31. The
Fraud
Triangle
n
n
n
1.
Motive
–
most
often
financial
pressure
from
gambling,
drug
use,
expensive
lifestyle.
2.
Opportunity
–
weak
internal
controls
that
lead
to
a
perceived
lower
potential
of
being
caught
3.
Rationalization
–
believes
that
they
are
underpaid
or
thinks
that
boss
is
also
stealing.
33. Profiling the Fraudster
n Things
to look for:
n New
fancy car
n New fancy house
n New fancy girlfriend or boyfriend
n Expensive trips
n Dramatic lifestyle changes
IMPACT MANAGEMENT SYSTEMS
34. n This
environment
has
not
stopped
the
fraudster;
rather,
he/she
has
been
forced
to
change
tactics
and
targets.
n The
modern
“professional”
fraudster
has
become
more
sophisticated,
developing
schemes
to
maneuvre
around
accounting
controls
36. ‘ Red Flag ‘
n What
to do when
you suspect
fraud ?
37. Stage
1
n
Continue
as
normal
n
Begin
a
covert
investigation
using
trusted
internal
investigators
and
or
external
specialists
n
List
all
reasons
for
suspicion
n
Keep
a
detailed
log
of
all
actions
and
events
from
first
suspicion
38. Stage
2
n
The
management
can
search
for
evidence.
n
n
Full
background
check
on
suspect
companies
previous
employers
and
records
Download
and
analyze
suspects
work
computer
n
Detail
analysis
of
transactions,
documents,
files
n
Detail
analysis
of
phone
records,
etc.
39. What
You
Should
Not
Do
:
n Suspend
or
dismiss
suspect
n Question
any
suspect
or
potential
witness
n Make
any
unsubstantiated
accusations
n Make
any
other
action
that
may
compromise
your
investigation
40. Stage
3
n Contact
your
attorney
for
Civil
Suit
n
Contact
law
enforcement
for
Criminal
Suit
n
Let
others
know
that
this
activity
will
not
be
tolerated
41. Cracking Down on Unethical
Practices
n
Collusive Bidding
n
Restrictive Condition in Specification
n
Artificial Stimulation of Demand
n
Sabotage of Competitive Products
n
Padding of Orders and Shipments
n
Use of Unfamiliar Terms & Measurements
n
Obscure Contract Clauses
Excessive Sample Orders
n
42. Investigation Process in
Embezzlement
1. Determine if the embezzlement actually
occurred.
2. Finding out the total amount of the theft,
and how it occurred
3. Removing the culprits from the workplace
and taking further action to make sure
that the theft does not continue
into the future.
IMPACT MANAGEMENT SYSTEMS
