According to "The Next Normal: Preparing for a Post-Pandemic Fraud Landscape," released by the Association of Certified Fraud Examiners (ACFE) in September 2020, half of U.S. companies uncovered more fraud after the COVID-19 pandemic began than they experienced before. So if you're now welcoming employees back in person or getting your business back to full capacity due to the pandemic, you might find an increased incidence of fraud.
The longer a fraud scheme goes uncovered, the more your business may lose, so it's important to investigate suspicious incidents as quickly as possible. Here's some guidance to help your company position itself for a fraud-resistant future.
Assessing New Risks
If most of your employees worked from home during the pandemic, your managers may have found supervising their activities challenging. Even if you kept workers on the job (for example, if you're a manufacturer), you may have had trouble maintaining your usual supervisory levels and anti-fraud procedures. In either scenario, less-honest workers could have had greater opportunities to steal. Employees also may have fallen victim to fraud schemes committed by third parties such as customers and suppliers — and especially cybercriminals.
As your business returns to "normal," consider assessing the internal control environment with a fraud risk assessment (FRA). This is particularly critical if the business model your company now follows has changed. For example, as with many retailers, the amount of revenue earned online may be far higher than it was before. Or the products and services you sell may have changed. For instance, some liquor distilleries and perfume manufacturers shifted to making alcohol-based disinfectants in 2020, which may also have altered supply chains and distribution networks.
An FRA entails identifying the potential schemes facing your organization now and the controls that would help detect or prevent their occurrence. Using the previous example, let's say that you pivoted from making perfume to producing hand sanitizer and have decided to continue selling that product. An FRA can look at your vendor vetting and new-hire processes to determine whether they followed pre-pandemic procedures or whether you require new, more rigorous ones. If you're now selling products primarily online, an FRA can help determine whether your cybersecurity protections and payment systems are up to the challenge.
Your company may choose to conduct an FRA itself, or you may prefer to engage a CPA or forensic accountant to perform the assessment. Whichever method you use, be sure to implement internal controls to address any deficiency that's found. And even if you don't find deficiencies, solicit tips from employees. They may have been reluctant to raise suspicious during the pandemic and are willing to speak up now that they're back on site.
If your FRA reveals a suspicious transaction or an employee makes a fraud allegation, don't wait to conduct an investigation. The ACFE reports that the typical fraud results in a median loss of $8,300 per month — but a scheme in your organization could be even more costly.
A thorough fraud investigation requires knowledge of employment law and advanced accounting principles, as well as tremendous attention to detail. For these reasons, your company should engage a fraud expert to lead the investigation. Inexperienced questioners can get into legal hot water when questioning suspects. And evidence can easily get lost or become inadmissible in court if it's not handled properly. But a CPA or forensic accountant uses specialized knowledge and experience to minimize legal risk.
The expert, potentially working with your legal counsel, will establish the appropriate parameters and the type of evidence to gather. But he or she will rely on you to help determine the interview list and provide access to your company's work spaces and IT network. At the conclusion of the investigation, the expert is likely to suggest how to prevent fraud incidents in the future through enhanced controls.
Novel Fraud Challenges
A lot has changed in the business world since the pandemic began. As you navigate novel challenges, don't forget to keep fraud prevention top-of-mind. Many criminals took advantage of the pandemic's chaos and uncertainty to pursue new fraud schemes — and they may only be coming to light now.