Emerging Insights on Pandemics and Corporate Fraud

Remain Vigilant on Monitoring Current Fraud Risks

The effects of this pandemic impact organizations in a variety of emerging risk areas. We anticipate an increase in corporate fraud cases as financial stress from COVID-19 impacts employees. These insights for Internal Audit, Compliance, and Loss Prevention functions will help confront the growing risk of fraud.

 

Increasing Fraud Risk for Organizations

The conditions which drive employee fraud have increased with the current COVID-19 pandemic. Fraud incidents occurred at a high pace in what was a very strong economy prior to this pandemic. ACFE’s 2018 Report to the Nations estimates fraud losses are 5% of a company’s annual revenue. It’s anticipated with remote working, financial strain on employees, and a lack of focus on internal controls during the pandemic, fraud loss will increase.

 

Three Elements of the Fraud Triangle

Pressure, rationalization, and opportunity explain the reasoning behind a person’s decision to commit workplace fraud. Fraud occurs when all three elements are present.

 

 

 

Pressure increases with reduced wages, furloughs, or increased medical costs due to the effects of the pandemic.

Rationalization is justified as entitlement grows, a perceived excess of company assets, or the risk-benefit ratio favoring the reward.

Opportunity occurs with perceived weakness of internal controls, ability to influence others to hide fraud, or perceived ease of system manipulation.

 

Monitor Red Flags

Pay attention to potential red flags such as unusual access - frequency or altered time periods to premises, systems, accounts, or equipment. Furloughs and lay-offs lead to increased work for the remaining employees. Access control issues occur with expanded privileges and segregation of duties issues occur when companies eliminate roles. The frenetic pace of work caused by understaffing creates blind spots to fraudulent schemes.

Monitor staff well-being with regular communication.

  • Review reports routinely
  • Develop reports to expose fraudulent behavior
  • Monitor staff well-being with regular communication

 

Tone at the Top

A successful deterrent is an unwavering leadership tone. Lack of direction and communication encourages employees to create their own direction, providing the impetus for internal fraud.

Internal audit and loss prevention departments must be more vigilant in monitoring for instances of fraud. Complacency provides the opportunity for someone with motive to take advantage of lax implementation and enforcement of policies and procedures.

 

Contact your local Experis Finance representative about how we can help mitigate the risks of corporate fraud.  

 

Authors:

  • Tim Lietz, CIA, CRMA, MBA 
  • Deron Rossi, CFS