Fraud Detection Tests Manufacturers Can Run on Their Own Data

The Association of Certified Fraud Examiners (ACFE) estimates that organizations lose about 5% of revenue to fraud each year. Manufacturers and distributors face particular exposure: valuable materials, tools, and finished goods move through plants, warehouses, and trucks every day, often across several locations. Fraud detection for manufacturers often starts with operating data, because fraud signals usually appear there well before they reach the financial statements.

Consider an organization with a dozen plants making similar products. Internal audit noticed that one plant's cost of goods sold ran well above the other 11, driven by far greater use of a precious metal input. When auditors cleaned the lenses on the plant's cameras and pulled the footage, the first image showed an employee knocking a camera away from the production line.

Hidden cameras then showed the same employee leaving each day with oversized thermoses filled with the material. Over a year, the employee took $1.8 million and sold it to the same buyer that purchased scrap from the employer.

Key Takeaways

• Fraud detection for manufacturers often starts with operating data the organization already has, such as material usage, access control system entries and exits, vendor records, and payroll files.
• The ACFE estimates that organizations lose about 5% of revenue to fraud each year, and fraud signals often appear in operating data before they reach the financial statements.
• Comparing contract labor invoices and payroll records with access control system entry and exit records can reveal billed hours and paid employees with no matching attendance.
• Matching vendor records to employee records, and checking system permissions for conflicting access, address two common procurement fraud risks.
• When a test turns up something, preserve evidence, involve counsel early, and notify the insurer promptly before confronting anyone.

Here are eight fraud detection tests you can run with data you already have to uncover common schemes in the industry. Each test looks for patterns in operating data, such as invoices, access control, or system logs, that do not add up.

1. Benchmark Material Use Across Plants, Lines, and Shifts

Calculate material consumed per good unit produced each month. Flag any plant, line, or shift that runs persistently above the others. Rising scrap or yield loss in one area without an operational explanation deserves a closer look, as do cameras or access control readers that aren't working.

2. Reconcile Scrap Generated to Scrap Sold

Estimate the scrap your production should generate, by weight, and compare it with scrap sold and the proceeds received. Red flags include declining scrap revenue as production rises, cash scrap sales, and a single employee who controls both scrap sales and the relationship with the buyer.

3. Match Contract Labor Invoices to Badge Data

Compare the hours billed by staffing and contract labor providers with entry and exit records from your access control system. Look for hours billed on days the plant was closed, overtime billed without matching attendance, and rates that drift from the contract. Small overages add up: even modest padding on each invoice can lead to significant losses over a year.

4. Test Payroll Records Against Badge and Bank Data

Look for employees with no access control activity, employees who share a bank account or address, payments made after termination, and overtime concentrated under a single supervisor. Many organizations review payables closely but rarely look for payroll fraud in this way.

5. Compare Vendor and Employee Records to Detect Vendor Fraud

Vendor and procurement fraud accounts for nearly 20% of fraud-related losses, according to the ACFE’s 2026 Report to the Nations, in large part because it is so easy to commit. Risk rises when one person can both approve a new vendor and authorize payment to it, and when decentralized organizations lack a firm handle on how many of their vendors are valid.

Match vendor addresses, bank accounts, and tax identification numbers against employee records. Other red flags include:

• Vendors with only a post office box
• New vendors that receive large payments quickly
• Invoices in round dollar amounts and/or are lacking sufficient detail for the goods or services provided
• Invoices just under approval limits
• Sequential invoice numbers suggesting you're the vendor's only customer

6. Review ERP User Permissions for Conflicting Access

Run a report of user permissions in your enterprise resource planning (ERP) system. Look for conflicting combinations: creating a vendor and approving its payments, adjusting inventory and recording shipments, or changing payroll data and approving payroll. Where staffing makes segregation of duties impractical, add a management review.

7. Analyze Inventory Adjustments

Sort adjustments by user, item, and time. Watch for write-offs of high-value items, adjustments made after hours, and repeated adjustments by the same person to the same items.

8. Review Access to Designs and Formulas

Product designs, formulations, and processes are valuable targets, sometimes for well-funded competitors or state-sponsored actors. The risk often comes from people already inside: employees, interns, contractors, temporary workers, and remote staff. List who can reach your most sensitive files, remove access that isn't needed, monitor large downloads and transfers to personal accounts or removable drives, and close access the day someone leaves.

What Should You Do When a Fraud Test Turns Up Something?

How you respond to fraud in the first days often determines what you can recover:

• Don't confront the person or announce an investigation. Doing so can lead to destroyed evidence.
• Preserve evidence first, including emails, devices, and system logs.
• Involve counsel early to protect the investigation's findings and the company’s legal position.
• Notify your insurer promptly. Crime and fidelity policies often have strict notice requirements.
• Decide in advance who handles serious allegations and when to bring in outside investigators. Include hotline reports that are unusual in nature or beyond your team's headcount or skills to investigate.

Where Should Manufacturers Start With Fraud Detection?

If you haven't completed a fraud risk assessment, start there. It shows where your organization is most susceptible, whether your internal controls address those risks, and which of these tests to run first.

Your own team can perform most of these reviews. When the results raise questions, or when an allegation calls for a careful investigation, our forensic and investigations professionals can help you assess what you've found and decide on next steps. Our team supports organizations with investigations, forensic accounting matters, disputes, regulatory actions, and law enforcement inquiries, including theft of monetary assets, equipment or intellectual property, truck-related losses, and product tampering. Contact our team to discuss which of these tests fit your plants and your data.

This article was prepared with AI assistance and edited and enhanced by EisnerAmper professionals for accuracy and completeness. All technical content, analysis, and recommendations reflect the knowledge of our team.