Food and drink firms are in denial about fraud

By Rick Pendrous

- Last updated on GMT

Fraud happens ‘in every business and in every sector’
Fraud happens ‘in every business and in every sector’

Related tags: Fraud, Management, Business

Food and drink companies are reluctant to recognise that fraud is a big problem in the sector, according to an accountancy expert specialising in this area.

“There is a general unwillingness to admit that fraud is an issue, even though it happens in every business and in every sector,”​ said Eoghan Daly, forensic and counter-fraud services manager with Crowe Clark Whitehill. “The food and drink industry, understandably, doesn’t want to discuss that at all.”

He called for food and drink companies to change their approaches to dealing with fraud by adopting better internal systems and procedures. “It’s impossible to be fraud-proof, but it is possible to be fraud-resilient,” ​claimed Daly.

Speaking at a seminar on the UK food supply chain last month in London, organised by the Westminster Food & Nutrition Forum, Daly claimed this reluctance to accept that fraud was an issue was quite revealing and suggested “organisations were not really managing fraud at all”.

‘Not really managing fraud at all’

“Organisations with a more mature approach to fraud can talk about fraud; the extent, how much is happening, what they are doing about it, the work plan they have – the specific problems and weaknesses and the systems they have to manage fraud; much like any other business issue,”​ he added.

“To improve the efficiency of information sharing, there has to be a change in mind-set about the way fraud is thought about in food and drink businesses.”

At the moment, the majority of information that is collected relating to fraud is focused on laboratory tests of things like ingredients and product composition, said Daly.

‘In every business and in every sector’

“There is a general unwillingness to admit that fraud is an issue, even though it happens in every business and in every sector. The food and drink industry, understandably, doesn’t want to discuss that at all.”

  • Eoghan Daly, Crowe Clark Whitehill.

“While testing is a very good validation tool, testing is an activity-based indicator and it doesn’t really reveal whether fraud affecting a food and drink business is going up or going down.”

He called for more “outcome-based indicators” ​relating to food fraud. “Outcome-based indicators will allow food and drink businesses to demonstrate they are managing their fraud vulnerabilities effectively and demonstrating the effectiveness of their interventions.”

‘Demonstrate they are managing their fraud vulnerabilities’

That, he added, would provide information that was conducive to sharing with other people, rather than information about specific risks, commodity groups or the results of testing, that firms might want to keep to themselves.

Daly disputed that a tougher regulatory environment was needed to deal with the problem.

“Regulations are typically only as effective as the enforcement that goes with it,”​ he claimed. “All of the trends are that enforcement is getting fewer and fewer resources dedicated to them.”​ This situation, he added, was unlikely to change given the resources needed to be devoted to Brexit.

“To encourage that change of approach​ [to fraud] by food and drink businesses, the due diligence approach seems to me a good place to start, where due diligence requires that food businesses take reasonable and proportionate steps to avoid the commissioning of an offence​,” said Daly.

Related topics: Supply Chain, IT

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