Pen & Paper Traceability in High-Value Green Coffee Supply Chains

Introduction

A leading coffee trader, committed to ethical sourcing and sustainable practices, initiated an internal audit to assess its supply chain integrity. A key concern was the adherence to requirements to certifications such as Rainforest Alliance, which were crucial to maintaining customer trust and loyalty.

The Audit Finding

During the physical inspection of warehouses, auditors encountered a significant discrepancy: the lot numbers on stock keeping labels did not align with the corresponding purchasing records. This inconsistency raised concerns about the potential mixing of certified and conventional coffee beans.

Deeper Investigation

A thorough investigation revealed that the issue stemmed from record-keeping errors rather than intentional fraud. The company had inadvertently mislabeled certain batches of coffee beans.

Lessons Learned and Future Improvements

While the initial audit finding was alarming, the subsequent investigation dispelled the most urgent concerns. However, the incident highlighted the importance of robust record-keeping practices and the potential benefits of digital solutions.

To enhance its supply chain integrity, the auditors recommended the following measures:

• Digital Transformation: Investing in advanced inventory management systems to automate record-keeping and improve traceability.

• Enhanced Training: Providing comprehensive training to warehouse staff on proper labeling, storage, and documentation procedures.

• Physical Segregation: Storing certified and conventional stocks in separate areas to prevent mixing and cross-contamination.

By addressing these issues proactively, the company reinforced its commitment to sustainability and ethical sourcing, safeguarding its reputation and customer trust.

Bean Counter's professional advisory services result in rapid and effective risk identification, gap assessments, investigation, and resolution.

Uber Eats on a Saturday Night

An engagement to review expenses uncovered a potential irregularity in an executive's expense reports. Several Uber Eats orders, categorized as "Team Dinner," were delivered to the executive's home address on weekend evenings. However, the expense reports lacked details about the team members who allegedly participated in these dinners.

Upon further investigation, it became apparent that the executive occasionally hosted informal work discussions at their home on weekends. In these cases, the employees did order food to be shared. Unfortunately, in a few instances, the executive had inadvertently used their company-issued credit card for personal expenses, failing to switch the Uber app from "Business" to "Personal" mode.

While the executive's intentions were not malicious, the incident highlighted the importance of robust expense management policies and procedures. To prevent future occurrences, the consultant recommended new procedures for expense reports review and better use of digital expense tracking tools, which can integrate with services such as Uber.

When a $250 Bill Turns Into $1,250

The Problem

A consultant was engaged by a global food processor to conduct a comprehensive review of its Procure-to-Pay (P2P) function. While mapping the process and controls, the consultant discovered a significant gap in the invoice validation process. The offshore shared services team, responsible for reviewing and validating supplier invoices, mistakenly assumed that the on-site Accounts Payable department was handling this critical task. Likewise, on-site Accounts Payable assumed offshore shared services was performing this task.

The Investigation

To assess the potential impact of this oversight, the consultant initiated a detailed review of inbound freight invoices. This analysis revealed several red flags, including:

• Inconsistent invoicing practices

• Handwritten invoices with unclear or amounts

• Lack of supporting documentation for charges

A particularly egregious example involved a handwritten invoice from a repair company. The repair bill, initially claimed to be $1,250, looked doctored. The consultant, a Certified Fraud Examinder, obtained an original copy of the bill after a visit to the repair shop. It was for only $250. This discovery prompted a broader investigation into the company's freight providers, uncovering a pattern of overbilling.

The Solution and Impact

The consultant's keen eye for detail and expertise in fraud examination enabled the identification and mitigation of a serious control failure. By exposing the weaknesses in the P2P process, the company was able to stem a multi-thousand dollar fraud. 

Key Takeaways

• Even seemingly minor process gaps can lead to significant financial losses

• A strong internal control environment is essential to protect against fraud and error

• Regular audits and reviews can help identify and address vulnerabilities

• Bean Counter's trained consultants can efficiently map process and controls and formulate gap assessments, deploying internal audit procedures if necessary to assess vulnerabilities

Control Gaps Allow Inventory Loss to go Undiscovered

A global cocoa supplier, sourcing beans from diverse regions, faced a significant challenge: discrepancies in inventory records. While conducting a routine review, a consultant noticed inconsistencies between physical inventory counts and the company's SAP system. A deeper dive revealed that finance personnel, unable to participate in all physical counts due to logistical constraints, relied on reconciliation files to align the numbers. However, these files contained unexplained adjustments, raising suspicions.

The consultant insisted on a re-count under independent supervision. The results were alarming: a substantial inventory shortage, valued at over $1 million, was uncovered. A subsequent investigation led to a startling discovery: a fraudulent scheme involving collusion between the primary supplier and the buying point manager.

The manager had been registering fictitious purchases, allowing funds to be diverted to the supplier. These funds were then used to procure cocoa beans from local growers, which were subsequently delivered to the company. This practice not only violated the company's procurement policy but also circumvented the approved credit terms for suppliers.

Key Takeaways:

• Inventory Verification: Bean Counter is well-versed in best practices for inventory verification, including independence, counting procedures, record keeping, and sound reconciliations.

• Segregation of Duties: Bean Counter will provide recommendations on segregation of duties to avoid situations that can lead to fraud, such as when the procurement manager also has control over stock keeping. 

• Supplier Advances and Credit Controls: Working capital is the lifeblood of businesses and their partners. Bean Counter consultants provide the know-how to build credit and risk management policies that balance the need for working capital with safeguarding against default and long turnover cycles.

Find out more about Bean Counter's expert approach and the services we offer

Contact Bean Counter to inquire about professional advisory services and safeguarding your company against risks and frauds

Services

Contact Bean Counter