5 Types of Financial Frauds that can be stopped with Recovery Audits in the Supply Chain Sector

Have you always wondered where all your money went? Are you frustrated about the bills and procurements from all your vendors? Well, it’s not easy to streamline cash flow and audits in a supply chain business.

The supply chain sector faces unique financial risks due to its complex nature involving multiple parties and global transactions. While most businesses strive for integrity, a few bad businesses have been known to exploit loopholes and commit fraud.?

A recovery audit effectively detects and prevents common types of financial fraud in supply chains. The following are five common financial frauds that can happen in supply chain businesses.

Invoice Fraud

One of the most widespread issues is invoice fraud, where a supplier submits fake or inflated invoices for goods or services not delivered. This can be difficult to catch as the purchasing team may not verify each invoice in detail. However, a recovery audit examines 100% of invoices through analytical tools and skilled auditors.?

By comparing invoices to supporting documentation like purchase orders, receipts and shipment records, auditors can identify anomalies and red flags. This helps recover overpayments and stop future invoice fraud attempts.

Duplicate Payment Fraud

In large supply chains, it is easy for duplicate payments to slip through unnoticed due to the volume of transactions. However, each undetected duplicate payment amounts to real financial loss. Recovery audit software is specially designed to analyse payment records across different ERP systems and detect duplicate payments based on invoice details.?

Auditors then validate the matches and work with suppliers to recover the overpayments. This fraud prevention control saves considerable money for businesses over time.

Unauthorised Price Increases?

Unscrupulous suppliers may try to increase the prices of goods or services without authorisation from the buyer during the contract period. A recovery audit mitigates this risk by having experts review contract terms and approved pricing against actual invoice amounts.?

Any price discrepancies are flagged for investigation. This acts as a deterrent against unauthorised price inflation, ensuring suppliers adhere to the agreed commercial terms.

Fictitious Supplier Fraud

In some cases, fraudulent employees may set up fake supplier entities and route payments to their bank accounts. However, recovery audit procedures catch this by verifying the supplier's legal registration and bank account details.?

They also check for unusual patterns, such as a new supplier receiving multiple large payments within a short period. This helps uncover fictitious suppliers and the individuals behind such schemes.

Under-delivery and Short-shipping?

Supply chain inefficiencies or intentional acts can result in the under-delivery of ordered quantities. Recovery audits bridge this visibility gap by examining purchase orders, shipment records, delivery notes, and invoices. Variances in quantities are identified, and discrepancies are resolved by working with all parties. This deters suppliers from retaining goods paid for but not delivered. It also helps optimise operations by flagging systemic short-shipping issues.

Recovery audit equips businesses with powerful financial controls to identify and stop the most common types of invoice and payment fraud targeting supply chains. Conducting regular post-payment reviews creates an effective fraud prevention system without disrupting established payment cycles.?

The collaborative approach of working with suppliers to resolve variances builds trust while recovering significant losses over time. We strongly recommend considering a recovery audit for robust fraud protection in complex international supply chains.