How to Manage the Risk of Corporate Fraud during a Pandemic

 

The risk of fraud is present in all organizations, to a greater or lesser degree, depending on various internal factors such as organizational culture, level of maturity in corporate governance, management of risks, internal control, type and size of business and others, and external factors including industry: national / regional context, market in which it operates and others.

Fraud, unfortunately, is a risk that can affect any organization at any time, in normal times or even in times of crisis. Furthermore, in times of crisis, the risk of fraud may increase, as some people may find in the crisis a motive (pressure / incentive), an opportunity, or a justification (rationalization) to commit irregularities.

In times of crisis, such as the current COVID-19 pandemic (a health crisis that also generated a social and economic crisis), some people may decide for the first time to commit fraud, but also those accustomed to committing fraud may try to take advantage of the circumstances to commit new or major irregularities.

Committing fraud at any time is something reprehensible, even more so if it is commented in moments of crisis, sometimes even appropriating resources destined to help overcome the crisis.

As a contribution to the global fight against fraud and corruption, the Aurora-based global investigation and forensic accountingcompany Studler Doyle decided to address the scenario directly and with a practical approach, providing a detailed view of increased risk of fraud (corruption, misappropriation of assets, fraudulent financial statements) in organizations due to the pandemic, considering key actions related to:

1. Vulnerability assessment

2. Risk mitigation

3. Monitoring of fraud alerts (red flags)

Also presented in this article is a very useful analysis on how to deal with a possible increased risk of fraud in these times of COVID-19 (pre and post-pandemic), from the perspectives of the Fraud Triangle, the Three Lines, Cybersecurity and Global Risk. People and organizations around the world are struggling to overcome the crisis caused by COVID-19 pandemic and its direct and collateral effects; in that fight, internal auditors are active part, helping organizations to overcome the crisis and recover from it.

The premise is that to combat fraud, organizations (including their internal auditors) must assess how the COVID-19 pandemic affects employee feelings and may influence all three elements. One reason for the increased risk of corporate fraud during an economic downturn is that all three elements of the fraud triangle are adversely affected.

Dee Studler, co-founder of forensic accounting firm Studler Doyle, describes the current economic recession as one in which job fraud can thrive. She warns: “Anyone who has the minimal understanding of fraud is familiar with the concept of the fraud triangle, which identifies the pressure, opportunity and rationalization as the key ingredients”. The pandemic fuels the first (the pressure) in multiple ways, as its impact on economies threatens the financial well-being of millions organizations and billions of workers around the world.