CreditorWatch Risk Management
4 mins read

Managing fraud in the manufacturing industry

Has your manufacturing business taken a hit from faulty products or supply theft? Or is your business at risk of being a victim of fraud?

The manufacturing industry and the problem of fraud

The manufacturing industry is one of the most vulnerable sectors when it comes to the risk of fraud and corruption. Horror stories involving inferior product quality, false warranty claims, and stock theft and misuse, among many other unfortunate scenarios, have caused significant fraud-based losses to many manufacturing companies and their livelihoods. In some cases, such fraud-based regulatory and statutory violations have been taken up to court or been the catalyst for more criminal action, devastating these companies even further.

So why is fraud such a problem within the manufacturing industry?

The short answer? Easy exploits points. With how heavily the industry relies on inventory and supply chains, there are many points at which dishonest players can engage in fraudulent activity. Such entryways and key fraud risks within the industry include:

  • Product counterfeiting or product substitution in the grey market – where products are sold legally but without the company’s permission.
  • Bid rigging, collusion or price fixation – where competitors invoke uncompetitive tender processes that can result in organisations paying higher prices or receiving lower quality goods or services.
  • Kickbacks – which is a form of negotiated bribery in which a commission is paid to the bribe-taker in exchange for services rendered.
  • Warranty claims fraud – when an inauthentic or illegitimate product fails in service and the owners of the failed product request your business to pay the costs associated with remediating the mess.
  • …as well as intellectual property (IP) infringement, conflicts of interest, theft or misuse of inventory, and vendor, supplier or procurement fraud.

What’s even more cause for concern is how easily these types of frauds can be missed. It takes an average of two years before frauds are detected within a manufacturing company’s systems, usually through tips or by accident rather than by internal audit, internal controls and external audit combined.

But while all this fraud and corruption pose a high risk to your manufacturing company, it can also be proactively mitigated! Implementing anti-fraud controls and a robust fraud risk management program has resulted in lower losses for companies in the past, which is why it’s important for your business to take them into consideration.

How to Prevent Fraud

Your first step to mitigating the risk your business has in encountering fraud is to know exactly who you’re working with. For large contracts especially, you’ll need more than just credit reports and monitoring tools to identify your high-risk customers, so take initiative in exercising due diligence and build a stronger risk management system to protect your business and your credit!

CreditorWatch’s solutions makes your business’s fraud risk management faster, easier and less expensive. Our Director Due Diligence allows you to uncover valuable information about the directors you’re working with. It reveals dodgy behaviour like adverse cross directorships, potential conflicts of interests and fraudulent actions like illegal phoenixing. This helps you mitigate the risks they pose to your business.

Meanwhile, our Financial Risk Assessments provide you with an expert analysis of a company’s overall financial performance and risk, helping you make more informed procurement and trade credit decisions. By choosing the right entities to work with, you’re better able to protect your business on all fronts. 

Our Know Your Customer (KYC) procedures and Anti-Money Laundering (AML) reports go beyond credit risk to reveal the potential criminal risks of your trading partners and reduce your exposure to fraud. Our AML reports include politically exposed persons (PEP) and sanction checks to identify any involvement in bribery and corruption. They also contain adverse media checks, verification of identity (VOI) checks, document verification services and more.  

Meanwhile, Ultimate Beneficial Owner (UBO) reports increase transparency, revealing who actually owns the business, helping to protect your company from exploitation. We even conduct civil litigation searches to help your business find out if your trading partners (or their owners) have a history of illegal activity, reducing your proximity to corruption and further losses. These industry-leading tools pinpoint risky trading partners, empowering you to take them off your radar sooner rather than later.

CreditorWatch helps manufacturing businesses detect and prevent fraud. For a free demo, contact us today!

fraud manufacturing
Michael Pollack
Head of Media & Communications
Michael joined CreditorWatch in July 2021. He has more than 20 years’ experience in business journalism, marketing and communications strategy and digital content development. He is passionate about communicating to the business community how CreditorWatch’s product suite can help them grow and protect their companies.
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