April 28, 2008 by Canadian Underwriter
Companies expanding globally, outsourcing their business operations and adding new IT systems are making themselves more vulnerable to fraud, according to a report from Kroll, a 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’ by globalizing, outsourcing and re-engineering their business processes, Kroll observes in a press release summarizing the results of its findings.
As a result, expanding companies are more vulnerable to an array of frauds, including simple theft, misrepresentation of inventory to fool investors, 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,” said 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.”
The pharmaceutical industry is cited as having particularly complex patterns of production, distribution and sales. Kroll’s report cites data from America’s Food and Drug Administration (FDA) showing the volume of fraudulent drugs in the supply chain has increased five-fold between 2001 and 2007.
Fraudulent e-pharmacies are “raking in up to $6 six billion per year,” Kroll notes.
And in terms of supply-chain exposure, according to the International Cargo Security Council, “cargo theft is estimated to be a $12 billion problem in the U.S. alone,” Kroll says. “Unfortunately, the thieves preying on companies aren’t always on the outside. Internal theft throughout the supply chain is a major risk as well.”