In 2013, a worldwide survey of manufacturing determined that nearly 90% of manufacturing companies were subjected to fraud in one form or another. Another survey conducted in 2017/2018 and then compiled in the Kroll Annual Global Fraud & Risk Report, found that about 86% were victimized by fraud to at least some extent. Over a five-year period, the high levels of fraud remained virtually unchanged. Manufacturing remains a prime target for fraud, but why?
Of the manufacturers reporting fraud, 88% of them stated they had cyber-attacks of some kind. The worldwide “demand” by cyber-criminals for information has made manufacturers a consistently vulnerable target due to multiple suppliers and customers. Information, especially personal data, and credit card information is monetized worldwide, sold and re-sold. Many companies, about one-quarter of all companies reporting, also experienced phishing vulnerabilities.
A Different Story
It would be wrong to say that the biggest problems are caused by foreign players attacking computer systems. The survey data tells a completely different story. The incidents data was broken down into three categories: “Fraud,” “Cyber,” and “Security.”
In the “Fraud” category, about one-third of all incidents was due to “information theft” either within or outside of the manufacturing company, but close to 30% was due to corruption and bribery, with more than 26% of the companies 
reporting that there were management issues where there were “conflicts of interest.” In the “Security” category, far and away the largest percentage of problems (45%) was due to physical theft or thefts of intellectual property.
Whenever a major case of fraud was uncovered within the organizations, it was found that about 66% of their customers were impacted as well. Customers were most deeply concerned when employee fraud was found in a manufacturer. Fraud erodes reputation.
The 2018 report contained a troubling, ethical warning for manufacturers. Despite the assumption that digital threats were the biggest danger, the report stated that “Insiders and ex-employees continue to pose the greatest fraud threat to companies in the manufacturing sector.”
Incidents of fraud are most likely to be committed by 42% of junior employees, 34% of ex-employees and 30% of vendors and suppliers. While the report talked of sophisticated cyber-security systems and cyber training being put into place, there wasn’t one mention of ethical training which, while not surprising, is quite troubling.
Information walking off of the job
The manufacturing sector is often viewed as being “unsophisticated.” However, fraud is the result of factors we have seen in industries across the spectrum whether the manufacturing of tractors, computers or biotechnology.
In the absence of ethical training, it is no wonder that manufacturing fraud is coming from junior employees, disgruntled ex-employees and inappropriate vendor-employee relationships involving bribery and kickbacks. Intellectual property, products, and personal data are literally walking off of the job.
Unethical behavior often occurs where there is a lack of oversight. An employee seizes an opportunity to commit fraud because no one is around (either literally or figuratively) to check up on them. The need of some employees to commit fraud may be monetary or to gain favor with a vendor for other considerations or in some cases, revenge of some sort against management or even to leak information to the competition. There are numerous ways unethical employees rationalize their unethical behavior, but most of those rationalizations are wrong.
Unfortunately, if ethical behavior is not taught and reinforced, no matter the type of manufacturing operation, many employees will find a way to invent their own brand of ethics. Fraud in manufacturing operations is as serious now as it was several years ago reflecting that the commitment to ethical training is still not considered a priority. I can’t help but wonder how many billions of dollars have been lost because companies are unwilling to spend a few thousand. Manufacturing remains a prime target for fraud, not always from foreign attacks. Statistics show that junior employees are more to blame.
