The importance of continuous monitoring of the supply chain to reduce fraud and malpractice

Graeme Drummond
11 December, 23

Every industry is vulnerable to bad actors, and these individuals can be found within even the most reputable of businesses. 

Unfortunately, these bad actors can cause significant disruption, with fraud and malpractice two of the most common challenges. Both of these issues are known to impact the supply chain, and are perhaps more common than you might believe. Private businesses lose £133.6 billion a year to procurement fraud – the most common type found within supply chains.

Due to their scale and complexity, there are many points of weakness a bad actor could look to abuse, and manually monitoring these sprawling networks inevitably leaves shaded areas for exploitation to occur.

With this in mind, continuous monitoring of the supply chain should play a vital role in fraud mitigation tactics. To achieve this, the right tools and advanced technologies must be injected at key points of the supply chain to keep an eye on where fraud is most likely to occur.

When is fraud most likely to occur?

Certain stages of the supply chain are inherently more susceptible to being targeted by fraudsters, including procurement, inventory management, and distribution. These vulnerabilities tend to be emphasised when businesses and supply chains are experiencing turbulence, such as that caused by the war in Ukraine. 

When business owners turn their attention to staying above the red line, attention is diverted away from the areas that are open to abuse.

More often than not, those targeting key areas have inside knowledge of the organisation – dishonest suppliers may fraudulently inflate prices or collude with internal employees to exploit the organisation financially, for example through inventory theft or syphoning off money as part of procurement fraud.

In fact, procurement fraud in the UK has jumped 13% in the past year, according to independent advisory firm, Accuracy

How technology can help

Even though a fraud expert could likely pick out a fraudulent transaction upon investigation, due to the sheer scale of supply chains it’s not feasible that a person or even a whole team could effectively monitor for fraud 24 hours a day, 7 days a week. That is where artificial intelligence (AI) and machine learning (ML) can help.

Using AI and ML, systems can be taught to identify and flag tell-tale signs of fraudulent behaviour. With the supply chain being monitored in real-time, experts are only alerted to check on transactions that are likely to be criminal – allowing them to dedicate more time per transaction to thoroughly assess the risk of fraud.

It’s important to point out that some fraudsters are wise to detection methods, and often update their tactics to stay under the radar. This means that an AI may not recognise what they are doing under pre-assigned rules. But, by training AI on what typical transactions look like – in terms of volumes, cash values, and frequencies, any transactions which trend away from this norm are also escalated for human analysis. 

This two-pronged approach takes a holistic and proactive approach to risk management, allowing supply chain managers to minimise financial losses and prevent crime. 

Extracting helpful data

There are two key benefits of continuous monitoring. Firstly, a well-guarded supply chain. Secondly, the huge wealth of data these systems generate. This data can be analysed to derive valuable insights which boost overall performance.

For example, procurement teams can drill down into the data to compare pricing across divisions and geography, and achieve optimal contractual agreements. Having a central source of data also reduces audit costs and saves staff administrative time when inspections are required.

Continuously analysing delivery performance across suppliers helps busy stock management teams to stay ahead of shipment delays or other unforeseen challenges. Over time, this data can also highlight bottlenecks or other issues in need of a resolution. 

Aligning efforts

However, as with any organisational change, stakeholder and whole team engagement is vital to ensure success in implementing continuous monitoring practices. 

Without the necessary alignment across fraud prevention efforts, the system is fragmented. Cracks and vulnerabilities that remain or are newly opened will offer fraudsters avenues to exploit.

Using time freed up by automation and refinement of manually checked transactions, staff can conduct regular reviews and adjustments. Doing so keeps the continuous monitoring approach robust, up to date – and importantly, one step ahead of fraud.

Supply chains will remain an attractive target for criminals to exploit. Therefore, reducing the risks of fraud and malpractice by incorporating technology and leveraging continuous monitoring practices into supply chains is a necessity. Preventing fraud effectively not only protects an organisation’s financial health, but also maintains their reputation as a responsible and trustworthy business entity.

Find out more about how SAS can improve your supply chain intelligence.

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