As the food industry looks to combat the estimated $40 billion a year issue of food fraud, attention is shifting to pre-empting food fraud threats and taking a proactive approach to stopping fraudulent behaviour. The food industry, historically, has taken a reactionary stance to food fraud. However, there is now a major effort to control fraud before it is instigated.
A legislative push has begun for a proactive approach to be taken to food fraud. The latest version of the British Retail Consortium’s food standard (BRC7), addresses the foresight needed by all that contribute to the supply chain.
“The company shall have processes in place to access information on historical and developing threats to the supply chain which may present a risk of adulteration or substitution of raw materials” (BRC7)
The new directive ensures companies have an outward focus to the wider industry. Risks can be identified that could impact the business and preventative action can be taken to secure their supply chain. The information tracking can be taken further and developed with the use of horizon scanning.
Horizon scanning is a holistic analysis of the market. It factors in market trends, product shortages, new products, high margin products, ease of access to counterfeit goods, prices of goods and level of regulation in different markets. All this information together can identify profitable markets for fraudulent behaviour and the markets most at risk. The information must then be acted upon to ensure that the fraudulent raw materials never make it into the supply chain. Key indicators can lead to the identification of spikes of fake products entering the supply chain. When many factors align, it almost makes it a certainty that fraud will occur.
The Cumin Industry
The Cumin industry in India between 2012 and 2014 is a key example of this. During this period drought and extreme temperatures hit the growing areas. Coupling this with unpredictable monsoon seasons, the price of cumin doubled in this period. The high price lead to a very profitable situation for millers of cumin to increase their stocks by introducing foreign materials to increase weight. This combined with low levels of regulatory oversight and easy access to cheap counterfeit materials lead to fraudulent cumin being produced.
The situation manifested in peanuts and almonds, amongst other goods, being introduced into the cumin supply. A serious threat to allergy sufferers was created for a wide range of products. Horizon scanning would have raised red flags to the issues facing the cumin industry during this time. Manufacturers would have had time to take preventative measures such as testing and implementing stricter traceability systems. However, the scandal was not dealt with until it was too late and over 700 products were recalled across the US alone.
Another method that is being implemented in the food industry to identify potential vulnerabilities to fraud is forensic accounting. This method treats food fraud as what it is, fraud. Pro-actively using accounting techniques to review the practices and supply chain of the business can expose risks that were once hidden in mass data. Forensic accounting follows the money trail and exposes inconsistencies that could be the result of fraud, or potential areas where fraud can occur. Part of the process is a review of supplier prices against the commodity price and the costs of production. Anomalies in the price can be indicative of kickbacks paid to an employee, which raises the price, or fraudulent goods in the supply chain lowering the price from the benchmark.
The money trail can also pinpoint where exactly the raw materials have come from and if new and unapproved suppliers have been introduced. However, this may prove difficult if the supplier is unwilling to be fully transparent with the reviewers. To counter this, random paperwork checks can detect abnormalities with suppliers, which can lead to the detection of fraud. Implementing accounting techniques can use the wealth of data big businesses have and expose gaps that are not easily visible, allowing management to act upon them and mitigating future risk.
If your business needs assistance with Threats and Vulnerability systems or training, contact Quality Associates today for a free phone consultation on 1300 73 71 93 or firstname.lastname@example.org.