Food fraud & supply chain integrity | Deloitte UK has been saved
In 2013, horsemeat was identified in 37% of beef burger products1 by the Food Safety Authority of Ireland and the UK Environment, Food and Rural Affairs Select Committee. The discovery caused a seismic shift in consumer trust in food and beverage supply chains and the advent of increased regulatory scrutiny.
Understandably, organisations within the sector need to be increasingly alert to their potential exposure to food fraud, and this risk has been brought back to the forefront with unprecedented demands placed on the global supply chain during the COVID-19 pandemic.
So what does this mean for food and beverage suppliers, and what measures might they take to protect against and respond to these risks?
What is food fraud?
The criminal intelligence unit of the Food Standards Agency (FSA), the National Food Crime Unit (NFCU), defines food fraud as:
A dishonest act or omission, relating to the production or supply of food, which is intended for personal gain or to cause loss to another party.
Food fraud is a collective term used to encompass the deliberate and intentional substitution, addition, tampering, or misrepresentation of food, food ingredients, or food packaging; or false or misleading statements made about a product.
Food fraud can affect anyone in the supply chain: suppliers, manufacturers, distributors, retailers, and food service outlets, and in particular, the end consumer.
Risks are heightened by complex international supply and logistics networks, fluctuations in consumer behaviours, the increase in online markets, and economic pressures on costs. It is also for these reasons that food fraud can go undetected.
Why should the food and beverage sector take note?
In 2018, food fraud was estimated to cost the UK food and drinks industry in the region of £12bn per year2 through overpayments for lesser ingredients, unfair competition and reputational damage.
Corporates caught in food fraud scandals, face not only the cost of regulatory action and fines but also reputational damage and the loss of consumer confidence. Unannounced inspections by the FSA and undercover investigations by the press have resulted in suspended production, resignation of senior staff, cancellation of supply contracts and even business failure.
Operation OPSON, a joint Europol-Interpol operation between the police and food regulatory authorities, seized more than €100 million worth of potentially dangerous food and drink in its latest operation which ran from December 2018 to April 2019, with over 600 individuals arrested3. Examples of food fraud uncovered by Operation OPSON included:
COVID-19 – unprecedented pressure, risks exposed
Supply chains have been under unprecedented strain due to COVID-19. Stockpiling and unexpected surges in demand from consumers, coupled with delays brought on by transport restrictions and staff shortages have had a significant impact on the food and beverage sector. Increased pressure to find alternative suppliers at short notice has forced the sector to act quickly to fulfil orders. In this environment, vulnerabilities have been exposed, new untested suppliers may have had to be sourced, and the risks of food fraud have been brought into sharp focus. In May 2020 there were reportedly two seizures of fraudulent horsemeat shipments, masquerading as beef, as well as a seizure by British customs of illegally imported smoked fish4.
Will COVID-19 be a wake-up call for supply chain transparency? The need to understand the full supply chain and where and how products are sourced has come to the forefront for both businesses and consumers alike. A focus on ethical supply chain is likely to continue after the crisis, with increased awareness and scrutiny from consumers on where the items in their grocery basket have come from.
Is your organisation prepared for such risks?
Regulatory scrutiny of potential food fraud is anticipated to continue to grow and enforcement will become more common, so what do you need to do to protect your organisation, and your end consumers, from this risk?
Are you ready to respond? Has the impact of COVID-19 exposed you to increased risks of food fraud? Establish a team to identify critical issues, conduct a food fraud risk assessment and ensure current procedures are fit for purpose and enhanced as required to reflect the changing environment.
Do you have a crisis management plan? Have you considered how you would respond in a crisis and do you know what best practice looks like? Businesses need to establish a robust crisis management plan to enable them to respond efficiently and effectively, minimising damage to customers and reputation.
Are you confident in the integrity of your supply chain? How well do you know your supply chain; are you able to source reliable suppliers at short notice, validate them, identify red flags and triage accordingly?
It is vital to assess all parts of your supply chain and onward sale routes so that you have full visibility of any areas of potential concern and can put in place appropriate measures to mitigate against these.
Jackie Lyons is a Director in the Firm’s Forensic practice with over 12 years’ Forensic experience and is a Fellow of the Institute of Chartered Accountants in England and Wales. Jackie is a specialist in investigations with significant experience of managing fraud, accounting irregularities, anti-bribery & corruption and sanctions investigations, with particular experience within the Consumer Product, Retail, Financial Services and Life Sciences industries. She has significant experience of working alongside legal teams, supporting clients in responding to requests from regulators and presenting findings to regulatory bodies.
Emily is a partner within Deloitte’s Risk Advisory team. She leads Responsible Business for the Consumer industry in the UK and advises clients on a range of sustainability issues, to include decarbonisation, TCFD, human rights, sustainability strategy, and circularity. She has extensive experience supporting the fashion, luxury and retail space.