The Fast Moving Consumer Goods (FMCG) industry is a fertile area for fraud. FMCGs are products that are sold quickly and at some point, at considerable prices. By nature, FMCGs are of a short life span. They are either durable, such as kitchen utensils, which are eventually replaced over a period of time, or non-durable, such as processed foods, soft drinks, etc.

Due to the fast moving structure of the products, there is a high risk of fraud. For example, salespeople have to meet their targets, potentially giving rise to numerous fraud occurrences.

Litigation involving consumer fraud is always met with a high fine, and ultimately reputational damage. Because of the nature of the business characterised by quick sales, they are always a breeding ground for fraud.

What are these areas of risks, and how can they be identified?

In the consumer industry sector, there are red flags to identify when checking for fraud. If there is no proper control over the inventory management, companies could lose huge amounts of money in physical cash and assets to fraud. It is important to conduct a regular, surprise check/count to test for accuracy. Compare the perpetual inventory to the physical records and identify any exceptions. If this does not add up, there could be cases of inventory shrinkage. It is worth noting that surprise counts should be carried out on any personnel, including the warehouse manager or store keeper, as the case may be. The reason for this is to allow objectivity and independence in the exercise.

In addition to the checks, there are inventories that are written off as scraps or inventories that have, say, expired and are consigned to be destroyed. There should be appropriate oversight over the discarding of such materials, such as approval from top level employees, and also a certificate of destruction.


Oct-Dec 2016 Issue

Ernst & Young