The Covid-19 pandemic has negatively affected businesses and individuals across the world. Battling financial concerns, adjustments to working from home, and operational challenges, companies have also had to contend with a massive increase in fraud and fraud risk. To manage and prevent fraud in 2021, business owners should be aware of the opportunities being exploited as a result of the pandemic, and how they can mitigate risk going forward. The ACFE’s survey Fraud in the Wake of Covid-19 outlines the fraud developments throughout 2020 and what challenges will remain in the coming years, providing an essential overview of the risks and concerns businesses should be on the lookout for.
Fraud is on the Rise
Throughout 2020, businesses have seen a consistent rise in instances of fraud, with no signs of this trend slowing down. In May, 68% of businesses reported an increase in the levels of fraud as a result of the pandemic. 6 months later, and that number has now increased to 79%. According to the respondents, this increase is not slight, but significant. And it’s not just businesses that are in trouble – individuals are also at a higher risk. The move online has facilitated a wave of online scams targeting unsuspecting and vulnerable individuals.
These increases are consistent across all fraud risk categories, but some are more prevalent than others. A large majority (85%) of businesses have seen an increase in cyberfraud in 2020 and expect these risks to increase in 2021. Payment fraud and identity theft were problems for almost 75% of businesses, with unemployment fraud and healthcare fraud following close behind. Insurance fraud, bank fraud, and bankruptcy fraud were not as prevalent as the other categories, but respondents expect them to reach similar increase levels in the next 12 months.
Unfortunately, these trends show no signs of slowing down. 90% of respondents expect fraud to increase further in 2021, with 44% believing the increase will be significant. Companies should be on the lookout for these fraud risks, especially those that have seen a dramatic increase in 2020, and implement response plans to tackle the specific issues.
How Companies Plan to Respond
A change in fraud necessitates a change in business response. Changes in circumstances can make elements of a response plan outdated, and this should be addressed as soon as possible to limit vulnerabilities.
The ACFE survey asked companies how they plan to respond, giving other businesses an idea of how best to mitigate risk. The most popular suggestion was increasing investment in anti-fraud technology. Almost 50% of respondents plan to use anti-fraud technology to combat new developments in fraud. Advances in anti-fraud technology over the past few years, including greater accessibility of AI and machine learning algorithms, have made anti-fraud technology a powerful and vital investment in the fight against fraud.
Many companies plan to increase anti-fraud program budgets to balance the risks and potential losses from the increases in fraud this year. Budgets will also be expanded for anti-fraud training for employees, an essential tool in fraud detection and prevention. Respondents said they will increase their amount of anti-fraud staff in-house, or invest in fraud risk consultants and other external resources, to adequately prevent and combat fraud within their businesses.
The one category understandably seeing a decrease in attention is travel. 38% of respondents said they will decrease their travel budgets for travel for anti-fraud staff either slightly or significantly, reflecting the changes in workplace environments.
The Challenges of Fighting Fraud During a Pandemic
Not only is fraud on the rise, but companies are finding it more difficult to prevent, detect, and investigate fraud when it is discovered. 77% of businesses found fraud prevention and investigation more difficult in 2020 – some significantly so. Similarly, 71% found fraud detection more difficult than it was before the pandemic, likely a result of changes in workplace environments and the inability of previous fraud detection plans to deal with these changes.
The most common challenge in detecting, preventing, and investigating fraud is the inability to travel. Any travel is unpredictable, and this problem is unlikely to be resolved soon, presenting great challenges to companies fighting fraud, especially in investigating. Conducting remote interviews was the second biggest concern, limiting investigators’ abilities to effectively resolve cases. Another vital element in fraud investigation – access to evidence – was also more difficult in 2020 for 36% of respondents.
Respondents recorded many common concerns, indicating the high levels of vulnerability companies face at this time:
- Cancelled or postponed engagements or investigations
- Reduction in anti-fraud staffing
- Lack of access to professional training
- Changes in controls due to staffing changes/reductions
- Decreased budget for anti-fraud programs or initiatives
- Changes in the legal/criminal justice system
- Technology challenges
- Lack of oversight due to remote workforce
- Communication challenges and delays
- Changes in controls due to remote workforce
- Maintaining data privacy/security
In the chaos caused by Covid-19, hundreds of new opportunities have been created for opportunistic criminals to commit fraud. Financial instability, workplace uncertainty, and general tension as a result of the pandemic all create the perfect environment for fraud – opportunity, rationalization, and pressure. All businesses and individuals need to be aware now more than ever of the potential risks of fraud and the negative impacts it can have.
If you are unsure of how to manage the fraud risks of your company heading into 2021, or are experiencing an increase in the levels of fraud as other businesses are, contact The Fraud Triangle Forensics for assistance.