Light in Dark Places: The Hidden World of Supply Chain Fraud

Interorganizational fraud, or fraud that occurs between organizations, is a critical component of supply chain fraud and supply chain relational risk, yet empirical evidence on the scale of interorganizational fraud and its antecedents remains scant. Despite its hidden nature, interorganizational fraud can have major implications for supply chain performance. Based on the theories of transaction cost economics, agency theory, and the fraud triangle, widely used in accounting and auditing research, five potential antecedents of supply chain fraud are considered and compared with reported losses due to interorganizational fraud. The data collected via a survey questionnaire with a sample of 151 supply chain employees in manufacturing demonstrate that informants estimated median losses due to interorganizational fraud to be 9% of their firm's total revenue. The most common types of fraud reported include product quality fraud, pricing/invoicing fraud, and corruption. Using a two-step generalized method of moments technique for estimation, the results found that transactional complexity, competitive pressures facing the supply chain, and weak firm ties were significantly related to interorganizational fraud, and that supply chain monitoring and ethical sourcing were not significantly related to interorganizational fraud. These findings contribute to the research on relational risk, supply chain risk management, and opportunism.

Automated summary

The study reveals that interorganizational fraud can have significant implications for supply chain performance. Transactional complexity, competitive pressures, and weak firm ties are found to be significantly related to interorganizational fraud.