Fraud occurs everywhere along the supply chain, from the manufacturer to the distributor's warehouse to points of sale. Information drives it, sometimes given willingly and sometimes through data breaches. Regardless of how it happens, innocent people are affected. 

Being aware of current scams and fraud can help you avoid it, in both your business and personal life. 

Procurement Fraud 

One of the most common examples of fraud in the procurement process involves an employee - or group of employees - scheming with a supplier to swindle their employer. Normally employees get kick backs or other forms of remuneration for assisting, though occasionally they're deceived into doing this. 

Some examples include: 

• Approving exaggerated invoices

• Inflating outlays to suppliers above real market value

• Price fixing

• Rigging bids 

• Sanctioning payment for work not done or products not delivered

Another form of fraud involves forming a dummy company or supplier account within a company's billing system. Payments are then made to the non-existent entity to steal from the employer through the payment of invoices, contracts, and other payments. 

Shell companies are nothing new. Large corporations tend to use them to reduce taxation, and they are generally not considered illegal. However, the formation of companies can be used to propagate fraud, and not just against businesses. 

One example of consumer fraud involves an Estonian firm that paid poverty-stricken Swedes nominal amounts to use their names and identities to start shell companies that then proceeded to defraud consumers throughout the world from a Ukrainian-based call center. 

Telemarketers then lured people into the scam, who were conned into thinking they were working with high-tech trading firms, encouraging them to open web-based investment accounts. These operated under different brands, using sleek websites and digital marketing campaigns to draw in naïve consumers looking to get rich quick. 

Yet often fraudsters don't need employees or others to participate willingly. Using personal details without a person's knowledge can actually work better, as there's no risk of a third-party snitching if the deception's discovered. 

According to the IT consulting company Wavestone US, "Cybercriminals are leveraging data hacking and fraud technologies to steal monumental amounts of sensitive data," including data on employees and others that can be used in such scams. 

This is why cybersecurity has become so very important to businesses both large and small.

Fraud in the Distribution Network 

While fake companies stealing from businesses and consumers is a problem, another point of fraud occurs in the distribution network, including those working in warehouses or transporting goods. According to the FBI, over $33 billion in goods were stolen during the shipping process, with only $7.5 billion of that recovered. And this is a worldwide problem, with supply chains in Europe, the Middle East, and Africa reporting losses just from trucking at nearly €138 million in 2019, according to the Transported Asset Protection Association. 

Securing the supply chain requires vigilance, as sometimes companies aren't aware of their vulnerabilities until thieves actually strike. For example, one third-party logistics provider in the United States approached an investigative firm to find out why they were experiencing decreased productivity, elevated levels of theft, and a rise in accidents in their warehouse. 

Through the use of covert operatives, they discovered a cocaine ring operating among the employees, with someone in HR tipping off workers to ensure they were able to pass drug screenings. The use of illicit substances created an environment where safety was compromised and theft increased, as employees stole to support their habits. 

One warehouse company took the following steps to help prevent such problems:

• Daily counts of products to quickly discover overages and shortages

• GPS systems accompanying products

• Incorporation of geofencing and enforcing strict geographical boundaries on routes

• Surveillance cameras

• Use of armed off-duty police officers making unscheduled checks

Another way companies can combat fraud in the distribution network involves using customized shipping labels. One shipping label company that I know of, enKoProducts, uses unique branding and identifiers that allow companies to easily trace packages, and that identify from whom they came and where they're going. 

POS Fraud 

One of the biggest areas of fraud occurs at points of sales. POS fraud often just happened when a waiter took your card away at a restaurant, capturing all the relevant information needed to duplicate it. With the growth of e-commerce, POS fraud has moved online in a big way, with fraudsters becoming much more tech-savvy and sophisticated. 

Thieves obtain access in multiple ways, through simply guessing weak passwords in a brute force attack, stealing credentials, or sneaking a keylogger app that monitors keystrokes into your system. Remote access allows all sorts of nefarious activity to occur, as does employees using unauthorized interfaces or installing unapproved applications on their work computers.  

Here are a few ways to reduce your risk:  

• End-to-End Encryption: Using software on your POS device that encrypts customer data - especially credit card or other payment information - will make it less vulnerable and keep it from being easily exposed to hackers. 

• Install Antivirus at the POS: Such software detects suspect files or apps, alerting you and helping you cleanse your system of malware that can steal data. 

• Lock Down POS Systems: Physically locking down the equipment used at your POS allows you to better control access, and helps ensure that unscrupulous employees won't be able to easily steal such devices along with customer records.

• Use an iPad for POS: Apple's operating system traditionally allows fewer attacks, because iOS only allows one app to run fully at a time, meaning such attacks rarely occur on Apple-made devices.

• Use a secure digital eSignature service like SmartSign when you deal with vendors. 

Knowing your vulnerabilities can help you prevent fraud from occurring anywhere along the supply chain. Understanding how fraudsters attack at each point along the supply chain can help you reduce losses for both you and your customers.