Fraud risk assessment is allegedly an important part of protecting a company, but is this just an academic exercise?
I wBeing sick makes you a judge.
I realize that fraud risk assessments are prepared for many reasons. They are prepared by management, auditors, regulators and risk managers. The expected result is to point out that the organization has identified risks and that internal controls manage fraud risks to an acceptable level. Do I have this right?
The premise of this blog is that without industry knowledge, your fraud risk assessment is nothing more than an academic exercise that meets the criteria. (As always, my goal is to make you think.)
So here is my question: do you really understand the risk of fraud? I will illustrate my concern by assessing common fraud risks: the charges of suppliers. From a hierarchical perspective, vendor sales are the first level of fraud risk description. The second level has many stages, such as price inflation, short goods, etc. There are many different plans for overfilling, but let's dig into product replacement.
Product substitution refers to the cognitive and intentional substitution by the provider without the knowledge or consent of the purchaser.
Repeat my question, do you really understand the risk of fraud facing organizations? Have you realized that the program can be implemented by a supplier, supplier, manufacturer and/or counterfeiter (probably a supplier, supplier or manufacturer)? So let me illustrate a better description of the risk of fraud. In each fraud risk statement, you can insert various variables. I call it the third level fraud risk.
Only the supplier (or collude with an insider) submits a product replacement plan (or provides expired items), resulting in warranty issues (or internals receive bribes for accepting expired items).
- Fitness issues
- False plan
- Outdated or expired plans
- Used, residual or outdated materials or components
- Materials that do not meet the contract requirements
Manufacturers acting alone deliberately mistakenly aged the chemical composition of their goods, resulting in potential legal liability. This may include:
- Chemical composition
- country of origin
- Incorrect test statement
The counterfeiter sells refurbished components to your company, thus damaging your company's reputation. This may include:
- Parts that do not contain appropriate internal structures consistent with ordered parts (manufacturers, wire bonding, etc.)
- Parts that have been used, renovated or recycled, but represent new products
- Parts with different packaging styles or surface plating from ordered parts
While I think this is better, the excellent question is: do I really understand the product alternatives that may occur in your spending cycle and where? For reference only, this is the same issue with your income cycle.
Suppose you are in the food industry. Let's look at product alternatives to the food industry. This is something we all eat. There are many alternative opportunities, but let's look at seafood in particular, which is the most expensive seafood. These are some of the most common product alternatives involving seafood.
- Suppliers operating alone mistake seafood for suppliers who are wild fishing and raised on farms, resulting in potential reputational risks.
- The fisherman (manufacturer) mislabeled sea bass or snapper, and the actual fish was less than ideal fish, resulting in intentional product alternatives.
- Restaurants or grocery stores intentionally mistake labels for less than ideal fish, such as sea bass or snapper, causing consumers to charge wrong fees.
To bring this academic exercise to life, let's add some industry knowledge.
Fraud and seafood
What do you know about seafood fraud reports?
The lead author of the report is Emily J. Spiegel, a legal and faculty member at the Center for Agriculture and Food Systems at Vermont Law School, who found:
- We eat up to 85% of the seafood in this country. It comes to us through a complex network of supply chains across the continent.
- Fraud falls into five different categories. There are two legal issues, the rest are consumer issues.
- Believe it or not, tuna is first and foremost a list of product replacements.
- A common problem is that fish have a lower value (such as tilapia or sometimes allergic escolar) are mistakenly marked as a fish with higher value (red snapper or tuna)
- Another problem is treating the fish with too much water to make it heavier.
- It is also worrying that the labeled fish obscures its source, for example, farmed Atlantic salmon is preferable to wild Pacific salmon
To illustrate real-life seafood alternative examples, I will provide hundreds of examples. When you read it, you see it's like a chapter in Believe it or not.
Fake caviar source: Hakai Magazine
What's worse than fake caviar? Caviar is not food at all. In Bulgaria and Romania, caviar from other fish is spread locally, precious st fish, and researchers in Germany collaborated with the World Wide Fund for Nature Austria have found some caviar samples that lack traces of any animal DNA. Their intuition is that this mysterious product contains completely human-caused ingredients that violate identification. Since real caviar is one of the highest prices in any edible animal product, there is a lot of motivation to sell it deceptively to unsuspecting customers.
My challenge to you!
Maybe you are not buying caviar or selling sea bass, but what are the alternative risks you have?
I challenge you to use Google product alternative examples for the main projects you purchased by your company. See what you found. Now ask: Will your internal control mitigate the risk of fraud, or are you just doing academic practice?
Next month, I will discuss why traditional fraud risk assessments are outdated. Yes, I'm familiar with all the recent guidance.
Travia fewer well-known fraudsters
1. Who is called the great impostor? Ferdinand Waldo DeMara
2. What is she famous for? She posted a rumor that she was the illegitimate child daughter of steel tycoon Andrew Carnegie, who was able to obtain loans and cash upgrades through an increasing number of lenders.
3. Who: Can you forgive me for her 2008 memoir? The man later became an Oscar starring Melissa McCarthy, a film starring Melissa McCarthy. Lee Israel
4. Who reportedly paid $320,000 by Netflix to turn her adventure into the right to invent Anna in the 2022 limited series, while Julia Garner portrays her on screen? This person also participated in the ABC Reality Competition program with Stars in 2024. Anna Delvey
5. The story also received Netflix treatment in the form of the 2022 documentary “The Tinder Swindler”. Although the exposure led to his expulsion from the dating site and a family called the Diamond Family, the man has since signed with Hollywood agents and hopes to appear in his dating show. Simon Leviev
Fraud Travia: The Great Impostor
1. What is the name of the movie “Ferdinand Waldo Demara”?
2. Who plays Ferdinand Waldo DeMara in the movie?
3. What is the name of the university he founded in Alfred Maine?
4. Demara has two beliefs. What are they?
5. Demara has two main rules; what are they?
6. In which town did he be born?
7. This town is famous for its “bread and roses.” What's this?
