As companies expand globally, outsource business operations and add new IT systems, they become more vulnerable to fraud, according to a report from Kroll, a leading risk consulting company.
The latest Kroll Global Fraud Report highlights the growing danger of supply chain fraud to businesses worldwide. Large companies have increasingly become ‘extended enterprises’ as they have globalised, outsourced, re-engineered their business processes, brought business partners and vendors closer and specialised their functions. The result makes them more complex and leaves them vulnerable to an array of frauds ranging from simple theft, to the misrepresentation of inventory to fool investors, through to counterfeiting, grey market diversion and piracy.
‘Fraud thrives on complexity and companies are facing fraud from the very beginning, on every single factor: raw materials, production, and delivery,’ says Richard Abbey, a London-based managing director at Kroll. ‘Today’s supply chains are a multi-faceted, complex web of relationships and processes that often spans a number of continents as companies become larger and more global in scope.’
One sector that has suffered significant problems, with potentially dire consequences is the pharmaceutical industry, as recent scandals in the US indicate. Its increasingly complex patterns of production, distribution and sales make it vulnerable. According to America’s Food and Drug Administration (FDA) the volume of fraudulent drugs in the supply chain has increased fivefold between 2001 and 2007 with fraudulent e-pharmacies raking in up to €3.8 billion per year. The World Health Organization (WHO) estimates that roughly 10 per cent of drugs on the market worldwide are counterfeit; as many as 25 per cent may be so in developing countries.
While companies work to secure their supply chains, thieves are working just as hard to exploit the vulnerabilities. Cargo theft, for instance, is estimated to be a €7.7 billion problem in the US alone according to the International Cargo Security Council. Unfortunately, the thieves preying on companies aren’t always on the outside. Internal theft throughout the supply chain is a major risk as well.