Coronavirus upended standard operating procedures for nearly every organization and changed where and how employees work. It has also significantly altered individual personal and financial circumstances. This combination of less oversight, stretched resources and increased pressure is a perfect storm for fraudulent activity, which makes organizational vigilance more critical than ever. Let’s take a look at what has changed, why it increases risk and what leaders can do to mitigate it.
Increased fraud risks due to COVID-19
- Increased opportunity: Employees working remotely often have a higher degree of independence than those at the office. Coupled with child care challenges, stay-at-home orders and a frequently disruptive remote working environment, employees may find themselves signing on at odd hours, which can translate into less oversight and fragmented communication. Procedures and controls may break down as employees shift into an “all hands on deck” mentality to fight through the crisis and deliver products and services to customers as quickly as possible. Often times, limited resources mean that typical fraud monitoring and reporting protocols are placed on the back burner.
- Economic pressure: Personal financial stressors have long been a red flag in fraud detection, and the coronavirus has led to personal and societal challenges that were unthinkable at the start of 2020. Many employees have experienced layoffs, hour reductions or pay cuts in their household. Perhaps your company is struggling financially, or will be unable to provide standard pay increases or bonuses this year. Tough circumstances like these create a way for fraudsters to rationalize their behavior and believe they can fly under the radar.
- Financial reporting uncertainty: The economic disruption caused by COVID-19 was swift and unprecedented. However, many employers are finding that their covenant requirements and financial deadlines are much slower to adapt, or perhaps have not changed at all. Coupled with ambiguous guidelines and changing goal posts related to federal assistance programs, the pressure to manipulate financial results can be significant.
While you may not be able to prevent the external pressures or internal rationalizations caused by the pandemic, there are several areas employers can monitor to limit the opportunity for fraud and quickly detect any unusual activity.
Conduct a fraud detection check-up
- Expenses: Do fluctuations make sense? Are reserves moving up or down? Are write-offs increasing? Are payroll costs reasonable given any headcount changes?
- Credit card and bank statements: Are there checks made out to unknown individuals or employees? Are IT purchases consistent with company policy and have they been approved? Are fuel cards monitored and does the activity make sense?
- Accounts receivable aging/write-offs: Have past-due customers been contacted? Are write-offs authorized and carried out in compliance with covenants? Has there been a change in who is receiving and recording customer payments?
- Access logs: Is company data exposed or open to breach? Are individuals accessing company networks securely? Is there risk of management override or segregation of duties issues? Have permissions been changed?
- Vendor listings and accounts payable records: Are there new vendors or unvetted third parties? Who is changing the vendor master record, and do those changes make sense? Is the volume and nature of payments consistent with your current operations?
- General ledger detail: Are entries appropriate and restricted to the right individuals? Are there large reconciling, reversing or force balance entries?
RKL’s team of fraud prevention and detection specialists can investigate suspicious activity or position your organization for stronger monitoring and mitigation efforts. Contact your RKL advisor or reach out using the form below to learn more, and be sure to check out our Business Recovery Resource Center for more guidance and insights.