Food & drink fraud - the role of the forensic accountant
14th April 2015 by Fiona Hotston Moore
A report from the University of Portsmouth in 2014* claimed food fraud in the UK costs food and drink manufacturers a staggering £11.2bn every year. The report went on to explain that in many ways food fraud is no different to any other fraud and therefore the industry and government should tackle it accordingly.
Food fraud, like other fraud, is financially motived. The report authors recommended that the industry should engage forensic accountants to look at the whole business rather than focusing only on individual function reviews by the men in white coats.
Food fraud includes a variety of criminal activity from swapping key ingredients with cheaper ones, incorrectly labelling or changing labels such as weight/source(eg: organic)/use by dates and counterfeiting. It also includes kickbacks to suppliers.
The margins in the food industry are tiny and thus can create pressure on those in management to be creative in their accounting, such as evidenced recently in the black hole in Tesco’s accounts caused by errors in ‘accounting for discounts’.
Forensic accountants can take an objective view of the accounting systems and internal controls and assess the areas of weakness. They can also undertake spot checks on vulnerable areas as, unfortunately, many food businesses have overly complicated supplier chain systems that can easily hide fraudulent transactions.
Fraud should be considered in relation to the fraud triangle - opportunity, ability and motivation. Motivation is almost impossible to remove - it derives from greed. Both opportunity and ability can be reduced. As with other fraud, the fear of detection is an effective tool and thus having an independent forensic accountant reviewing the systems and undertaking random checks can reduce or eliminate fraud. Fraudsters will look for easier targets.
Having a whistle blowing system is also important so that junior employees or suppliers can report concerns confidentially.
Reducing food fraud would reduce prices to customers, increase company profits and increase the collection of taxes and duties. Furthermore, there is a more sinister risk from food fraud and that is that it can harm consumers such as the baby milk scandal in China or where the substitution of ingredients introduces an allergen.
Food fraud affects all of us as it has driven up prices and puts our health at risk. Its time to engage not just food safety experts in white coats but also forensic accountants in the fight against food and drink fraud
*Report: minimising fraud and maximising value in the UK food and drink sector 2014 by Lisa Jack and Jim Gee.
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