COVID-19 Fundamentally Changes Businesses & Increases Fraud Risk
COVID-19 has fundamentally changed how businesses operate—and it has increased the risk of fraud. One cornerstone of fraud theory is the “Fraud Triangle,” which theorizes that, for a fraud to occur, three elements must be present:
- A perceived need or financial pressure facing an individual
- A perceived opportunity to commit fraud
- The individual’s ability to rationalize or justify fraudulent behavior
The response to COVID-19 has increased all three elements of the triangle. Without question, people are feeling more pressure and will have more opportunity to commit fraud as controls break down. And, given the circumstances, they may rationalize fraudulent activity when they otherwise would not. Stay vigilant!
Mitigating fraud risk takes a village. With remote work, internal controls and segregation of duties can break down. Below are three things you can do to help mitigate fraud risk.
- Data Analytics – Employ the power of data analytics to monitor transactions and help detect anomalies that may indicate fraud. According to the Association of Certified Fraud Examiners 2018 Report to the Nations, the median loss due to fraud in the 2,690 cases studied was $130,000. Losses range from small expense reimbursement fraud to asset misappropriation to multimillion-dollar corruption schemes.
- Hotlines – Tips are the number one method for detecting fraud. If you have a hotline, we recommend publicizing it to your employees today and expanding it to vendors and customers. If you don’t have a hotline we can help—connect with us to get a hotline set up.
- Employee Assistance Programs (EAP) – People can act irrationally during times of stress and crisis. If you have an EAP we highly recommend you promote this to your employees today. Just knowing their employer has help available goes a long way.
Visit BKD’s COVID-19 Resource Center for more information. If you have questions, reach out to your BKD Trusted Advisor™ or use the Contact Us form below.