Fraud in the Supply Chain
A Nevada, Mo., man pleads guilty to participating in a scam involving phantom loads of corn that defrauded Cargill Inc. of US $2 million over a 10-year period.
August 19, 2013
The Joplin Globe reports that a Nevada, Mo., man has pleaded guilty to participating in a scam involving phantom loads of corn supposedly delivered to a feed mill in Butterfield, Mo., which defrauded Cargill Inc. of US $2 million over a 10-year period. The man, who owned and operated a trucking company, held contracts with Cargill for delivery of grain loads. In 2002, he approached a scale and pellet mill operator at Cargill's feed mill in Butterfield about a scheme to create scale tickets for fictitious loads of corn delivered to the mill. The Cargill employee was responsible for weighing each truckload of grain delivered to the mill and printing scale tickets that were sent to the company's headquarters for payment to the haulers.
The Cargill employee pleaded guilty to wire fraud in May and is awaiting sentencing in federal court in Springfield, Mo. The trucking company owner faces up to 40 years in prison, a potential maximum fine of US $500,000, and a possible restitution order.
Fraud in the agricultural supply chain can result in financial loss and reputational damage to companies and governments, as well as higher prices for consumers. This case demonstrates that even companies with extensive resources may not uncover the fraud for many years — even when the perpetrator is an employee.
Large companies that have invested significantly in strengthening controls and practices over their supply chains can still benefit from periodic reviews and updates, particularly to adopt cost-efficient processes and technologies that can help prevent supply chain fraud such as:
Automating the scale ticket system for receiving grain shipment deliveries so a regular, direct comparison with inventories of grain on hand or shipped out of a given location can be made readily.
Ensuring that the local scale operator does not have sole authority to issue payment tickets.
Implementing video camera surveillance systems to monitor movements of trucks and people in and out of facilities. Ideally, the surveillance feeds could be forwarded periodically to headquarters for review.
Periodically redeploying or rotating employees and duties so that one person does not develop inappropriately close relationships with contractors and suppliers.
Setting time limits on the length of supplier/contractor arrangements, and wherever feasible, ensuring that no single supplier/contractor has an exclusive arrangement or is continuously selected to provide services that may be susceptible to fraudulent activity.
Ensuring that internal audit regularly assesses fraud risks to the company's supply chain, as well as reports periodically on the key risk areas. Contracting arrangements and payments over a given dollar threshold (e.g., US $250,000 in this particular case) should be flagged for internal audit's attention. The results of audits, including actions taken to redress fraud situations, should be publicized.