Many companies have needed to combat fraud in cost-effective ways during the pandemic. In times of stretched financial resources, a single incident of fraud can have disastrous results. These tips can help organizational leaders prevent and detect fraud on a limited budget.
Understand the company's current fraud risk profile
Research shows that many areas of fraud risk have increased in the wake of COVID-19. Knowing what types of fraud pose the greatest threat to the organization can help ensure that you avoid internal control gaps in the highest-risk areas. For example, if cyber fraud or vendor fraud risks have increased, the related controls and processes need extra attention. If the company has recently updated its fraud risk assessment, use the results to guide your advice. If the fraud risk assessment hasn't been updated, or if the company doesn't perform fraud risk assessments, this would be a good time to recommend doing so, as it is a relatively low-cost initiative — often only requiring staff time — that can help the organization prioritize the anti-fraud controls that will protect it the most.
Keeping the fraud risk assessment updated going forward can also help identify any unforeseen weaknesses or gaps in anti-fraud controls that might arise from budget or staff cuts.
When the company is under financial strain, many employees likely are as well. Nonfinancial pressures have also increased for most individuals during the pandemic (e.g., personal health and safety concerns, extended periods of social isolation and physical distancing, juggling remote work responsibilities with caretaking duties). In times of immense pressure, employees might find themselves tempted to resort to dishonest or fraudulent acts out of self-preservation.
With this in mind, management should ensure it is providing support for employees. In particular, supervisors should be trained to identify the warning signs that employees might be under extreme stress, as well as how to appropriately respond if they observe such a situation. Likewise, employees should be encouraged to talk to their supervisor, HR, or a member of the management team if they are experiencing pressures that might affect their performance or that they need help navigating. Additionally, employee-assistance programs can be an effective tool for fraud prevention. While these programs typically do have a per employee fee, some low-cost options are available, and they offer a way for employees to seek assistance with personal or financial pressures, which can ultimately reduce the likelihood of them turning to fraud.
Reinforce entity-level anti-fraud controls
In difficult economic times, management should resist the temptation to cut spending on its hotline or other controls. An effective reporting mechanism is one of the best anti-fraud measures a company can have. Tips are the most common way that fraud is detected, and removing the top fraud detection control during a time of financial hardship leaves the company's limited resources in further jeopardy. To get the most out of a hotline — and the other anti-fraud controls that are in place — revisit your anti-fraud training for staff as well.
Make sure you have updated the content to cover the relevant risks, concerns, and processes in the current environment and that the tone is appropriate for employees' current situations. The cost of conducting anti-fraud training can be minimal — perhaps just the staff time to develop and provide the content — but the benefits are notable. Done well, it creates an army of anti-fraud soldiers throughout the organization who are watching out for the company's resources and helping avoid fraud losses.
While there are no easy answers in hard economic times, you can support management in taking steps to protect the company from further financial harm caused by fraud.
About the author
Andi McNeal, CPA, CFE, is director of research for the Association of Certified Fraud Examiners, where she oversees the development and production of educational materials related to the prevention, detection, and investigation of fraud. To comment on this article or to suggest an idea for another article, contact Drew Adamek, a JofA senior editor, at Andrew.Adamek@aicpa-cima.com.