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Supply chain fraud rockets

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Posted on 4/07/2013 by Wayne Brophy FCILT

Fraud in UK supply chains has rocketed over the past six months, according to a new report, offering a stark warning to procurement and supply chain managers everywhere.

In the first six months of 2012, the total value of frauds committed within supply chains was less than £1 million, according to the Fraud Barometer Survey from KPMG. But over the same period this year, the figure shot upwards to £61 million.

It is likely that many of these crimes were committed by career criminals, since across the same time period professional con artists have increased their share of the fraud market.

As a whole, fraud cases totalled £516 million from January to June, an increase of over a quarter from 2012. More than half of that – £290 million – was down to professional fraudsters, compared to just £110 million last year.

Hitesh Patel, UK forensic partner at KPMG, points out that some cases of supply chain fraud can cause real human damage over and above the financial loss. In one disturbing instance, he notes, Iraqi authorities were sold fake bomb detectors which cost £55 million and posed a serious risk to human life.

Other serious fraud crimes mentioned in the report include the notorious horsemeat scandal, which implicated several large retailers who were unknowingly selling defective products. Another serious scandal in China involved baby milk which was said to be contaminated, causing international rationing.

KPMG’s report refers to another case study, in which vulnerable organisations such as schools, homeless charities and health centres thought they were buying new photocopiers, but were in fact sold substandard equipment and then charged for the repairs.

Even though procurement functions are working hard to perform due diligence checks on suppliers, criminals are getting better at circumventing these good working practices, Mr Patel says. Given the serious consequences of supply chain fraud, it is unsurprising that he is warning organisations to use all of the available data to make an informed decision before choosing firms with which to do business.

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