Is the threat of insider fraud during the pandemic still real?

We are all still living and working through a time of continued uncertainty.  People are often anxious about their futures, resulting in the temptation to commit fraud or the more vulnerable falling victim to fraud. Neil Miller, CFE reports…

The pandemic has changed the way we will work forever.  There will be less travel, we will work remotely and rely on technology; and experience more logistical and operational challenges. All of these equates to uncertainty.

Where there is change or uncertainty, you will find fraud.

Evidence gathered over the last year of this pandemic demonstrates that employers have observed a 79% increase in fraud as of November 2020, with a further 90% expecting an increase in fraud over the next 12 months.

Fraud Triangle:

The fraud triangle is an excellent tool to help identify fraud.

Opportunity, motivation (pressure) and rationalisation are the three points of the triangle and a combination of any of these will increase the threat of fraud.

Unfortunately, pressure and opportunity are the 2 key points that have caused these increases in fraud during the pandemic.

Pressure:

It is well documented that pressure can affect an individual’s decision making process. Where as motivation was the usual fraud indicator prior to the pandemic, pressure in the last 12 months has been the main reason for the increase in fraud.

During this pandemic, pressure can originate or build up from various sources, such as:

• the uncertainty of losing a job or a partner/spouse losing theirs and now experiencing financial hardship
• being placed on furlough and not enough income to settle the monthly outgoings
• a change in personal circumstances that has affected their lifestyle
• productivity levels adding pressure to performance
• financial and commission targets not being met due to a downturn of customers etc.
• an increase in mistakes or a lack of attention to detail due to pressures

Opportunity:

Pressure mixed with opportunity, employees are more likely to be able to commit fraud, compared to people outside of an organisation.  Employees are more familiar with the internal systems and points of vulnerability, as well as unchallenged opportunities working remotely within an organisation.

These vulnerability points might be:

• a lack of proper procedures for authorisation of transactions
• placing too much trust in key employee positions
• no segregation of key duties and accounting functions
• a lack of clear lines of authority and responsibility
• an absence of frequent policy and procedure audits
• a lack of independent checks on performance

Red Flags:

Recognising and understanding behavioural red flags can help organisations to detect, prevent fraud and avoid monetary and reputational damage.

Several studies commissioned by the Association of Certified Fraud Examiners (“ACFE”) identified that fraudsters exhibited at least one behavioural red flag and that multiple red flags were evident in 50% of cases.

Red flags include some of the following:

• living beyond one’s means – lookout for lifestyle changes, purchasing of expensive cars, houses, and luxury goods
• financial difficulties – check for the history of debt and be aware of any arising financial problems,
• consider addictive behaviours such as gambling
• are there any unusually close association with a vendor/customer
• excessive control issues or unwillingness to share duties, or beating the system
• is anyone going through divorce or family problems
• “wheeler-dealer” attitude involving shrewd or unscrupulous behaviour
• feeling their salary was less than their worth or responsibility
• look for a lack of recognition for their performance

Remedies:

There are some key areas to help mitigate fraud risks.

• Review: undertake formal fraud risk assessments to understand and reflect the new fraud risk landscape. Consider specific analysis in areas around procurement, expenditure, commission and financial reporting.
• Fix & Monitor: build a support case for continued investment in anti-fraud programs and investigations
• Improving Culture: educate leadership, colleagues, families, friends and customers about the effects of the pandemic on the fight against fraud.

Contact us immediately if you have a suspicion of fraud. The integrity and continuity of evidence must be preserved in a secure manner.