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Preventing Fraud in the Manufacturing Sector

The manufacturing environment poses significant risks for exposure to fraud. Raw materials, scrap and other materials found in warehousing and distribution centers can often present opportunities for employees, vendors and even customers to take advantage. Manufacturers can employ the services of certified fraud examiners at International Development Services to help reduce the potential for fraudulent behavior. Their experts can guide your organization in implementing systems that will assist you in detecting and preventing fraud in the workplace.

 

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According to the Association of Certified Fraud Examiners, seven percent of annual revenue is lost due to occupational fraud. There was a 40 percent increase over a two year period, which suggests fraud is an increasing risk that all manufacturers should be aware of. Manufacturing companies often witness heightened fraudulent activity during times of economic uncertainty, as witnessed during the economic downturn of 2008, as follows:

  • Manufacturers had the fourth highest number of fraud cases, ranking second in total dollars lost.
  • Manufacturers witnessed the third highest median loss out of all industry sectors.
  • Manufacturers had the largest median losses in industries with a minimum of 50 reported fraud cases.

Some of the most common types of fraud are fraudulent statements, corruption and fraudulent disbursements. In most cases, fraudulent activities go unnoticed for two years before detection, which is why it is recommended that manufacturing businesses seek the services of a certified fraud examiner from International Development Services.

Occupational fraud is generally discovered either by accident or through an inside tip. Almost 50 percent of occupational fraud cases involve personnel in accounting and executive/upper level management, while nearly 30 percent stems from employees in operations and sales accounting. The lack of internal controls makes manufacturers even more vulnerable. The consultants at International Development Services can implement systems that will allow you to detect occupational fraud. Anti-fraud controls and robust fraud risk management programs have proven to reduce losses due to fraudulent activities. They can also minimize fraud by up to 66 percent. It is important for your management teams to review and enforce internal controls. The internal controls alone will not prohibit fraud – enforcement is essential.

Once the necessary controls have been integrated, the organization can better rely on the validity of transactions and the accuracy of financial statements. There are various standards that transactions must conform to in order to be considered accurate. For instance, transactions have to be completely and accurately recorded in a timely manner. It is also imperative to monitor controls to ensure red flags are raised for non-conforming transactions, and that they are quickly identified and corrected.

 

Want to learn more about fraud prevention? Read this!

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