The Capacity for Fraud Amidst a Pandemic

In times of crisis and economic downturn, fraud tends to run rampant. Since COVID-19 began, the combination of health and financial threats laid the foundation for opportunistic fraudsters, those people who are looking to take advantage of a vulnerable market and a vulnerable population. From the global economy to individual lives, the pandemic has had a monumental impact on everyone. According to the president and CEO of the Association of Certified Fraud Examiners (ACFE), the largest anti-fraud organization in the world, an “explosion of fraud in the coming years” is imminent.

The ACFE conducted a survey of anti-fraud professionals following the recession in 2008, they found that the majority of the respondents noted seeing an “observable increase in the number of frauds”. History has shown us that economic distress is a breeding ground for fraud and that organizations must be vigilant and prepared. From mounting pressures on leadership to get their company back on track to instabilities in normal business processes and working conditions, the opportunity to commit fraud is wide open.

Spending the time to look at potential fraud scenarios is a prudent measure to take as a business owner attempting to survive today’s pandemic. First and foremost, it is important to recognize the industries that are most likely to be targeted by frauds:

  1. Consumer Markets
  2. Financial Services
  3. Healthcare
  4. Manufacturing
  5. Upside Companies – those organizations who are benefitting from a counter-boom in light of today’s economic misfortune

These industries are targeted for a number of reasons. From phishing scams to misappropriation to revenue leakage, the above five industries must remain extra attentive. When vulnerability is high, uncertainty is widespread, and disruption is commonplace, fraudsters aim to take advantage. The following are some of the most commonly seen fraud scenarios taking place right now:

  • Operations within an organization: increase in customer service claims, changes in customer behavior, and limited participation in fraud teams due to lean staffing
  • Customers experiencing fraud: employment scams, emailed malware or phishing scams, securities pump and dump schemes, bogus charitable solicitations, and even government relief payment fraud.
  • Financial reporting: asset misappropriation, collusion, earnings management, and other forms of inappropriate conduct
  • General organization issues: takeover of vendor account, increases in phishing, internal fraud, quality-related fraud

Preparing to combat fraud during the pandemic means taking specific measures to safeguard your organization. First and foremost, your staff must be armed with the proper tools to work remotely. Next, education on prospective fraud threats is critical – this means educating both the workforce and the stakeholder group. In addition, a careful eye must be kept on any third-party vendors or outside business partners. Finally, fraud detection measures must be revisited or established. This means utilizing fraud detection tools to flag any signs of cyberattacks, misappropriation, or customer fraud.

While no one could have predicted the lasting impact of COVID-19, the ability for companies to come out stronger lies in the proactive measures taken to safeguard their organizations as well as their employees. Impending fraud seems all but inevitable and those best prepared to fight it will find themselves protected in the short-term and well into the future.