Controlling and investigating fraud can be complicated and the current environment will only make it more challenging.
In this article, we will share examples and insights gleaned over the years about types of fraud companies may encounter in this current remote-centric society. Additionally, we will review challenges companies face in preventing, detecting, and responding to fraud-related activities.
Corporate fraud falls into two basic categories: internal frauds committed by company insiders and external frauds committed by outside actors.
Employees often serve as unwitting accomplices in external frauds. Phishing — clicking a link in an unsolicited email, not only compromises the computer, but often the network to which the computer is connected – this can be problematic for companies with remote employees overwhelmed with emails. Cyber criminals with access to sensitive operational and financial information will wreak havoc on any company.
In an economy where pressure to reflect some level of success is intense, company insiders may be tempted to inflate financial statements - not to boost their bonuses, but to merely maintain the company’s line of credit and stock price, or to keep their employees. Some employees might be under intense personal financial pressure and will attempt improprieties for their own benefit. The following are some common types of internal fraud we have seen and uncovered:
There is a lot a company can do to prevent fraud and ensure it does not go undetected for long periods of time. Companies that are successful in preventing fraud are those that implement strong internal controls with checks and balances; have an effective hotline; create an independent compliance function; and dictate a strong zero tolerance tone at the top, with full transparency and accountability. All of these areas must be revisited with the structural changes that have occurred. A remote workforce, reductions in workforce, and a stressful work environment are all reasons to conduct an updated risk assessment to determine if and where your company has gaps.
Even with all possible measures put in place to prevent fraud, the question of how a company can detect when employees are perpetrating a fraud still remains. Some tools and approaches can include: periodic fraud risk assessments; robust third-party due diligence and management assessments; and, real time monitoring, along with continuous fraud awareness training and reporting hotlines.
It also pays to note unusual behavior. The norm in today’s environment can be questioned but habits indicative of nefarious behavior should be watched closely.
The risks and processes that companies need to address will be evolving as we move through these challenging times. Citrin Cooperman’s Forensic and Litigation professionals are here to assist.