From financial statement fraud to cybercrimes, and many other types of fraud in between, 2021 and beyond is likely to see a rise in fraud reaching nearly every industry. The pandemic has laid the foundation for fraud to run rampant, creating an environment where fraudulent activity will increase due to a number of major factors:
- Cash flow is suffering
- People are working remotely on a large scale
- Federal financial assistance creates the potential for identity theft
- E-commerce purchases have skyrocketed
The use of digital channels for nearly everything means that the manner in which business is conducted changes. Unfortunately, the uptick in digital transactions creates the perfect breeding ground for fraudulent attacks. In addition, a lack of security measures in place has led to cyber fraud as well as business email compromise. This means that businesses need to take a close look at their fraud risk management structure and evaluate how effective it may be.
A time of crisis often brings out the worst in people and a global pandemic certainly exposes those who aim to take advantage for personal gain. A survey conducted by the Association of Certified Fraud Examiners (ACFE) in 2020 found that 77 percent of those who work in the industry had seen a risk in fraud since the pandemic began.
These tough times are quite reminiscent of the 2008 financial crisis, and the stock market is mimicking those hardships. In fact, it was during the 2008 recession that we saw another notable uptick in fraud throughout the globe. When companies and employees are feeling more pressure to perform, they are more likely to falsify things like financial statements, which happens to be the most costly type of fraud.
As commercial pressure mounts, employees finds themselves in an environment in which fraudulent activity seems like the only answer. In addition to these common factors, there are a few additional elements that have recently highlighted the possibility of fraud:
- Misappropriations of assets
- Government officials are more heavily involved if aid was used
- Jobs cuts are on the rise
- Resources are shifting to cut costs, where fraud protection and compliance often takes a backseat
- Leaning on third parties in a pinch, limiting the capacity to properly screen them
With corporate fraud spiking and a recover that seems to be slow, companies must ask themselves some hard questions to fight fraud and properly protect themselves. Are you performing safely on a digital level? What controls are in place to prevent internal fraud when remote work is commonplace? How trustworthy are your third party vendors? Are there checks and balances in place to protect your finances?
Asking these questions can begin to lay the foundation for a new, post-pandemic fraud protection framework. Understanding your company’s limitations is critical in defining how to best navigate the new normal of a digital landscape with many opportunities for fraud.
At Ellrich, Neal, Smith & Stohlman, P.A., our staff includes five Certified Fraud Examiners who are involved in fraud detection and prevention engagements. Such engagements include evaluation of an organization’s internal controls, identification and measurement of frauds, and implementation of procedures that will reduce the risk of falling victim to fraud schemes in the future. Past fraud engagements have resulted in successful recoveries in both civil and criminal actions. Contact our Miami, Orlando, or Palm Beach Gardens offices to learn more.