How to Detect & Prevent Fraud in SCM pdf
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Transcript of How to Detect & Prevent Fraud in SCM pdf
IMPACT MANAGEMENT SYSTEMS EMAIL: [email protected]
Supply Chain Risk Management August 15-16, 2013 1:00-6:00 PM
The Heritage Hotel, Manila
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
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.
n Dynetics Semiconductor Philippines n Dubai Aluminum Compnay Ltd., UAE n Arinco-‐Aramco’s Oil Projects, KSA n Halliburton International-‐K B R
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.
n BSBA-Management from University of the East, Manila.
Highlights Of Discussion :
n Fraud Prevention n Fraud Detection n Fraud Investigation
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.
n Fraud is an intentional deception
made for personal gain or to damage another individual;
n the related adjective is fraudulent !
What Is Corruption ?
n “Corrupt Practice” means the offering, giving, receiving or soliciting, directly or indirectly, of anything of value to influence improperly the actions of another party.
n Bribery and Kickbacks
IMPACT MANAGEMENT SYSTEMS
What Is Collusive Practice ?
n “Collusive Practice” means an arrangement
n between two or more parties designed to achieve an improper purpose, including influencing improperly the actions of another party.
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
$ 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
Definition of Occupational Fraud
n “ The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication
of the employing organization’s resources or assets.”
n How would you know if there is fraud in your SCM ?
IMPACT MANAGEMENT SYSTEMS
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
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
IMPACT MANAGEMENT SYSTEMS 15
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.
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
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.
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.
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
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
IMPACT MANAGEMENT SYSTEMS
The Cycle of SCM
Requisitioning
Buying
Delivery & Storage
Issuance
‘Red Flag’ in SCM
n Requisitioning n Purchasing n Receiving & Inspection n Issuance & Delivery n Usage or Consumption n Replacement & Replenishment n Returns
IMPACT MANAGEMENT SYSTEMS
Why Products Move Out
n Issuance n Transfer n Sales n Wrong Specs from Vendor n Replacement
Breakdown of Corruption Schemes
CONFLICT OF INTEREST
ILLEGAL GRATUITIES
BRIBERY
EXTORTION
40.0%
77.1%
25.0%
25.0%
Initial Detection of Occupational Frauds
NNT Canada Government
TIP
CONTROLS
ACCIDENT
INTERNAL AUDIT
EXTERNAL AUDIT
POLICE
42.2%
18.9%
16.7%
13.3%
6.7%
4.4%
Gender of Perpetrators
National Institute of Justice May 5, 2006
28.9 %FEMALE 71.1% MALE
Anti-Fraud Tactics are used ?
Internal Audit
External Audit
Fraud Training
Tip Hotline
Surprise Audit
65.2 %
50.6 % 50.6 % 49.4 %
21.3 %
CONTROL CASES PERCENTAGE %
External Audit
58 65.2 %
Internal Audit
45 50.6 %
Fraud Training
45 50.6%
Surprise Audit
44 49.4%
Tip Hotline 19 21.3
National Institute of Justice, USA May 5, 2006
Investigating Fraud
n Male (61%) n Accounting (30.3%) Manager (41.2%) n Been with the company for over 10 years (37.7%) n Has an undergraduate degree (33.4%) n Is between 41 – 50 years old (34.6%) n No previous criminal record (87.9%)
National Institute of Justice , USA
The Fraud Triangle
n 1. Motive – most often financial pressure from gambling, drug use, expensive lifestyle.
n 2. Opportunity – weak internal controls that lead to a perceived lower potential of being caught
n 3. Rationalization – believes that they are underpaid or thinks that boss is also stealing.
The Triangle Of Fraud
MOTIVE
RATIONALIZATION
OPPORTUNITY
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
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
DEPARTMENT CASES
Purchasing
Warehouse Manufacturing Sales Marketing Customer Service HR MIS R&D Internal Audit
25 23 31 115 13 92 15
20 10 2
‘ Red Flag ‘
n What to do when you suspect fraud ?
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
Stage 2
n The management can search for evidence.
n Full background check on suspect companies previous employers and records
n Download and analyze suspects work computer
n Detail analysis of transactions, documents, files
n Detail analysis of phone records, etc.
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
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
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 n Excessive Sample Orders
Investigation Process in Embezzlement
IMPACT MANAGEMENT SYSTEMS
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.
End Of Presentation
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