Forensic accounting can track food fraud
Jack, who contributed to the Elliott review into the integrity and assurance of food supply networks, told FoodManufacture.co.uk: “Food fraud is a fraud issue – therefore, you need to look at it from a management accounting point of view. It usually does involve firms’ accounting and paperwork.”
When considering a company’s resilience to food fraud, it was not enough to analyse its supply chain weaknesses, argued Jack. Experts should also be called in to assess how vulnerable their accounting systems were to abuse and anomalies in those systems, she said.
The approach involved looking at the entire business, rather than merely focusing vulnerability assessments on individual functions, as British Retail Consortium Global Standard for Food Safety Issue 7 did, said Jack. “If you are addressing fraud, you want everybody in a company to be aware [of what you are doing]. Vulnerability assessments involve a very small group of people.”
Both approaches were needed, but a compartmentalised approach risked failing to involve everyone in the business, she said.
‘Vulnerable to fraud’
Analysing business paperwork and accounting processes would highlight areas of vulnerability, such as overly complex supply chains, inconsistent payment periods, methods and charges. “If you have got a lack of internal control, you are always vulnerable to fraud,” Jack added.
She said random checks could be made to spot aspects of supplier relationships that were out of the ordinary, based on paperwork, and businesses could even appoint someone internal to do that.
One major accounting problem endemic in the food industry was that firms often worked on wafer thin margins, not taking overheads into account, she claimed. Large businesses were particularly vulnerable to this, because they could cover their overheads with sales in other areas, complicating finances and creating pressure to meet costs through creative accounting, Jack said.
Another problem with large, longstanding companies is that they had developed messy, uncoordinated supply chain IT systems that buyers and procurers didn’t trust. That increased pressure on them to indulge in shady practices to meet targets, she said.
‘Kickbacks to suppliers’
Forensic accounting could identify the weak points, according to Jack. “There are tests you can run that can pick up things like abnormal payments and kickbacks to suppliers. There are tests that, out of the transactions you have, say ‘this needs to be investigated’.”
For this reason, she argued the UK’s Food Crime Unit needed people with forensic accounting experience as part of its arsenal, as similar Danish and Dutch groups had.
“If you are going to do an assessment, you have got to look at management systems. The problem you have at the moment is that vulnerability assessments are being done by food safety experts, not by forensic accounting experts. The danger is this is just going to be tacked onto the technical team.”
Jack is planning a series of courses covering forensic accounting methods for food industry professionals in conjunction with NSF International, the first of which is scheduled for March 26 near Manchester. Online versions of the training are also being designed.
