January 27, 2026 Best Defense Against M&D Fraud: Strong Operations

Fraud risk levels may reflect how clearly a business is run. As operations grow in complexity, oversight becomes a critical line of defense.

By Tammy Gamble, Partner & Chief Risk Officer at The Bonadio Group, and John McCurdy, Partner & Industry Leader, M&D at The Bonadio Group

Fraud poses a persistent risk for manufacturing and distribution businesses, particularly in the mid-market. Thin margins and complex operations span multiple locations, vendors, systems, and shifting workforces. These environments often allow fraud to grow unnoticed within everyday processes that no longer receive consistent attention, until it becomes an operational issue leadership can no longer ignore.

Research from the Association of Certified Fraud Examiners has consistently shown that occupational fraud is both common and long-lasting. Most schemes are not detected quickly, and many persist because routine oversight fails to keep pace with operational change. For owners and executives, this reality reframes the issue: fraud exposure often reflects how clearly the business is governed.

Operational Complexity

Risk of fraud elevates as operations become more complex. Manufacturing and distribution often require coordination across multiple sites, legacy systems, and high transaction volumes where irregularities can blend into normal activity. Much of this work passes through multiple hands, from inventory adjustments to vendor invoices, payroll entries, and shipping records. Issues that begin with vague responsibilities or inconsistent internal review can gain momentum quickly in environments with this level of complexity.

These conditions are familiar to most manufacturing and distribution leaders. Growth, acquisitions, and operational pressure push teams to adapt quickly, while oversight often evolves more slowly. Reports and documented processes create a sense of control but must be supported through the sustained visibility that regular review and clear ownership bring.

Internal Accountability

Internal controls matter when they function as operational discipline. In manufacturing and distribution, clear role separation, approval structure, reconciliation cadence, and vendor oversight establish accountability across critical processes. That accountability ensures someone is responsible for identifying issues, bringing them forward, and resolving them before they become embedded in daily operations.

Without clear accountability, confidence in the numbers begins to fray. Financial information feels less settled, inventory accuracy becomes harder to rely on, and decisions are made with more uncertainty. Over time, that uncertainty affects both performance and credibility across the organization.

Visibility depends on how consistently processes are reviewed. In many organizations, issues persist simply because reviews happen too late or too infrequently. Monthly or quarterly reconciliation may meet reporting expectations, yet still leave gaps in fast-moving, high-volume environments. What matters is not just the review itself, but also who owns it, how often it occurs, and proper analysis of the data. Technology can strengthen this oversight when it supports existing controls. Tools that flag duplicate payments, unusual inventory adjustments, or payroll irregularities are only effective when responsibility for review and response is clearly defined. Without that structure, monitoring becomes passive, and issues surface only after they have already caused damage.

Organizational Behavior

Another major factor influencing fraud risk is company culture. Because culture is set from the top, employees pay close attention to how leadership responds when concerns surface. The speed of response, consistency of follow-through, and handling of exceptions shape expectations across the organization and influence how quickly and effectively problems are addressed.

Reporting mechanisms reinforce those expectations. Employees often notice irregularities early, but whether they raise concerns depends on how prior issues have been handled. Clear reporting channels and consistent responses help sustain trust and accountability across the organization.

Adapting Oversight

Change adds pressure to already complex environments. Growth, system changes, leadership transitions, and acquisitions reshape how work gets done. Controls that once fit the business can fall out of step and create gaps that are easy to miss without regular reassessment.

Broader operational thinking becomes especially important during periods of change. Leaders may not anticipate every risk, but they can prepare the organization to adapt as conditions shift. Scenario planning has gained traction among manufacturing and distribution leaders as a way to test assumptions and maintain decision readiness. That same mindset applies to fraud risk, where processes should be evaluated for resilience as volume, complexity, and responsibility evolve.

Fraud prevention in manufacturing and distribution requires ongoing attention as the business evolves. Organizations that integrate it into operational oversight are better positioned to identify issues early and respond with consistency. Clear operations support accountability, and accountability reduces exposure over time.

For leadership teams navigating tight margins and growing complexity, that connection matters. Disciplined oversight reflects responsible ownership and limits the conditions that allow fraud to take root and persist.

About the Authors:

Tammy is a Partner in The Bonadio Group’s Assurance Service and has more than 25 years of audit experience. She works closely with large- and middle-market clients in a variety of industries, including food and beverage, manufacturing and distribution, service providers, and technology and financial services. Tammy also works with portfolio companies of private equity groups and entities with multi-national operations. Tammy has experience with various accounting issues, including complex revenue recognition, derivatives, leases, complex equity arrangements, stock-based compensation, debt offerings, business mergers and acquisitions, goodwill impairment assessments, restructuring actions, restatements, and fraud matters. In addition to Tammy’s client service responsibilities, she is also the firm’s Chief Risk Officer (CRO). This critical leadership role is dedicated to managing our risk function amongst the significant changes our industry is experiencing.

John is responsible for business development, client/project acquisition, geographic expansion activities, and determining how and where each of their industry clients is best serviced within our Manufacturing & Distribution Industry. John is responsible for firm revenue and working collaboratively to optimize profitability for clients served in the Manufacturing & Distribution Industry. John stays current on technical matters and business objectives related to Manufacturing & Distribution clients. He works to identify and fill training gaps, identify new service line opportunities, and act as the firm leader for everything related to the Manufacturing & Distribution Industry.

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