How CPAs can fight fraud in the COVID-19 pandemic

Coronavirus is an opportunity for fraudsters to take advantage of fear and confusion. Elizabeth Woodward, CPA/CFF, and Howard Silverstone, CPA/CFF, discuss how accountants can identify and prevent coronavirus-related fraud.

What you’ll learn from this episode:

• Why fraud thrives in times of crisis.
• Several common fraud schemes that become more prevalent during a disaster.
• How to identify the red flags of coronavirus-related fraud.
• What CPAs and those who hold the CGMA designation can do to prevent fraud and misinformation.
• What a post-coronavirus landscape may look like for accountants. 

Play the episode below or read the edited transcript:

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA’s coronavirus resources page.

To comment on this podcast or to suggest an idea for another podcast, contact Drew Adamek, a JofA senior editor, at Andrew.Adamek@aicpa-cima.com.

Transcript: 

Neil Amato: Coronavirus is a significant threat to personal health, supply chains, and the global economy. It’s also a time for fraudsters to thrive. Accountants will be part of the effort to detect and prevent fraud and to educate the public.

CPAs Elizabeth Woodward, CPA/CFF, director of forensic accounting and litigation support at Dean Dorton, and Howard Silverstone, CPA/CFF, director at Forensic Solutions, have been at the forefront of those efforts. They are co-authors of the Winter 2020 FVS Eye on Fraud report called Preventing Disaster Fraud — the Winds of Change. They have been researching and writing about fraud during crisis for years.

I’m Journal of Accountancy senior editor Neil Amato. My colleague, JofA senior editor Drew Adamek, recently had a roundtable discussion with Woodward and Silverstone about why crisis engenders fraud, what CPAs should be looking out for, and how accountants can prepare themselves for the aftermath of coronavirus.

Here’s their conversation.

Drew Adamek: Elizabeth and Howard, thank you so much for joining us.

Howard Silverstone: Thank you.

Elizabeth Woodward: Thank you.

Adamek: What is it about this current environment that fraudsters find so attractive and what makes them successful in a time like this?

Woodward: Well, I think that it is a time of unprecedented stress if you think of the global reach. First of all, it’s all over the world so the opportunity is greater to the extent I think people feel more vulnerable, because that’s where fraudsters really have an opportunity is when people feel vulnerable. So, you know, we’re vulnerable, we feel vulnerable about getting sick ourselves, about our family members getting sick. We worry about if we’re going to have food and toilet paper, and we worry about how long and how far reaching the economic crisis is going to be.

So that’s a pretty broad band of concern that people have and to a large degree people are holed up in their homes, isolated. No one is kind of operating in their normal environment right now.

Silverstone: One of the things that we’ve talked about is that normally when you talk about fraud arising from a disaster it’s a somewhat geographically isolated incident. So, for example, Hurricane Katrina: geographically unique and fraudsters would prey upon the people who they saw as potential victims of that.

Now, other people around the country may have gotten fraudulent emails for fraudulent charities or charities that didn’t exist to help give to the fund, but what makes this unique is, as Elizabeth said, is it affects everybody in the entire world. There could be anybody in any country at any one time sending out phishing emails or whatever.

Adamek: What are the types of frauds that you’re seeing out there?

Silverstone: The first wave that I’ve seen have been a lot of phishing emails. So that people are just getting — you know part of the problem is, in this information age we’re getting emails, I’m getting dozens of emails a day from legitimate businesses.

I’m getting it from banks, I’m getting it from fellow CPAs, I’m getting it from law firm clients telling us what they’re doing in response to COVID-19. You know we’re keeping our branches open, but we’re having all our staff work remotely and they’re good pieces of information. But in the middle of all those dozens of emails are these phishing emails where people are sending attachments which may allude to good information or, you know, “Here’s a cure,” “Take this if you’re feeling sick,” and those you know are, those attachments like they are in many of these phishing emails are malicious software or they’re leading to a false website where they’re asking people to give information. So from my perspective that’s kind of the first wave that I’ve been seeing.

Adamek: In this time of incredibly fast-moving information and a vast sea of information, some of it conflicting, what are strategies for CPAs to navigate all of this information and how to really be aware of the fraudulent schemes that are out there?

Woodward: One, if you’re looking for information access a credible site yourself, don’t get to it via an email. Two, have a short list of what you think credible sites are. You know one thing that I’ve done personally I go to the CDC website and read what they say. I have found that I’m more comfortable doing that than listening to other people talk on the radio or TV about what the CDC is saying.

Professionals to the extent we’re all still working and dealing with clients every day, I do think we have to be very careful about our own mental health. We need to have well-balanced lives so that we are still performing at an optimal level for our coworkers and our clients.

We both have stories where we were — we encountered fraud, and you don’t always know right away exactly what it is. Even to someone with training it’s not necessarily always evident. You just have a feeling about it. So you slow down and you look into it and you think. You have to, at a crazy time like this, we need to remind ourselves to slow down, use our gut, use our intuition.

Silverstone: That’s an excellent point because in terms of how CPAs can help others, there is, it’s my personal opinion, I think there’s a bit too much information out there. I mean you literally can drive yourself nuts looking at the news especially online 24/7. You have to filter out from that which part of the news you trust and which you’re going to stay with. That really applies to the way that you should — CPAs can help their clients and family members and help their clients’ family members, which is kind of educating them on what type of emails they will be getting.

So in other words you might be getting emails from your bank or somewhere else, your local supermarket telling you about what time they’re going to be opening, but they shouldn’t be sending you anything that you need to click on. If anybody sends you an email that you have to have to click on something, immediately delete it.

What CPAs can do is also, as we always say in the world of fraud, “We’re always continually learning things.”

Woodward: You know one thing that CPAs need to remember and then, as we move forward in this crisis, pay attention to is the U.S. government is talking about pushing out aid to Americans, but the details on how that is to be done have not been finalized yet. If anyone gets an email or a text offering to get you that money quickly, it’s likely a fraud. But CPAs, as the government does finalize how that’s going to be done, I think we all need to make sure we understand and so we can help our clients as questions come up.

Adamek: This is a challenging time for all sorts of reasons, for people’s physical well-being, for people’s economic well-being, or our social well-being. There’s an instinct to help, but how do CPAs and other members of our audience, how do they assess things like charities to make sure they’re on the up-and-up? Are there red flags that people can notice for fraudulent charity?

Silverstone: If you’re getting emails from people the first thing you have to ask yourself is, “How did they get my email address?” If you’re not on a charity mailing list or whatever how is it that they’re getting to you? Which would tell you that it’s probably not legit.

But there is a service called GuideStar, G-U-I-D-E S-T-A-R, where you can actually check out if a charity is legitimate or not. Because if you feel so inclined that you want to give to a charity, before you do that you can go there and see if they’re listed.

Woodward: Yes, it’s guidestar.org. And also back to what we said earlier in the podcast don’t donate through an email, but go out and you know access the charity’s website and donate that way. Donate directly to the organization. If someone says, “You know why don’t you give me money and I’ll make sure the organization gets it,” that doesn’t sound very legitimate so don’t do it that way. Also, if anyone includes any kind of a time pressure or a sense of urgency that should always be considered a red flag.

Adamek: Are there specific strategies that people can use to protect themselves against deliberate disinformation in this time?

Woodward: Oh, it’s hard, and social media has made it so hard. I really don’t have a social media presence, but I got through this kind of text group that I’m in, a week ago I got some medical advice that was supposedly from a reputable source. You know, it was telling you things to do to kind of avoid getting the coronavirus. The person that circulated it was a credible health care professional.

Well, I read it and I guess because I’m a cynic by nature and because of what I do I read every word in it, and I noticed that it was recommending that you wash your hands with bacterial soap. I thought, “Well surely that can’t be correct. It doesn’t sound like a good idea to wash your hands with bacterial soap.” So I replied back about that, and someone did some research and found out in fact that it had been a scam and I think it had been going around all weekend and everyone that was kind of monitoring that medium was reading this thing. Now that’s not an example of a fraud, but it is an example of just bad information going around.

Silverstone: I would tell you I have pretty much cut myself off. I’m big into social media so you know from a business standpoint LinkedIn and from a social standpoint Facebook, Twitter. I’ve cut myself off. The reason I have is because my family members who a few weeks ago were experts in bitcoin and cybercurrency are now experts in COVID-19.

Then you have people who are forwarding, “Oh, I’m passing this on from a friend who’s a nurse.” You know, telling you just how bad things are.

Well, I’m an intelligent person. I know how bad things are, and if I choose to go onto my local radio or TV station to see what’s happening, I’m going to do that. So there’s a number of factors here. Again alluding back to what Elizabeth was talking earlier with people’s states of mind, you can every easily get caught up in this and your mood can change very quickly. You can be up one minute and then someone posts something on Facebook and it really hits you in the gut and it takes you down.

It’s at that point of weakness that you then become susceptible to something you may see, even as an educated person. I want to point this out because, and we haven’t talked about this and this may not be a scheme that particularly gets perpetrated at this time, but when all the dust settles and we’re still an economic mess, but we’re all feeling good physically, you know, we may see some more Ponzi schemes.

Woodward: Yes.

Silverstone: We haven’t talked about Ponzi schemes. But I was thinking about this over the weekend, because who’s not to say that you know when people will prey on people saying, “Look, you know the market’s down back to where it was four years ago. Things aren’t so great; however, with me if you invest with me, blah, blah, blah, blah.

And I have investigated Ponzi schemes over the years that have taken in accountants, have taken in lawyers, have taken in bankers, and I’ve sat in the room interviewing these people. “Well, you know the guy that cuts my hair told me that he had this guy that he invested with and” blah, blah, blah. You know at a point of weakness it doesn’t matter if it’s your mental weakness or it’s your financial weakness, you are at your most susceptible and that could be another issue that we haven’t even talked about.

Adamek: As we start to move away from this crisis, what are some of the potential frauds and scams and schemes that you see coming up?

Woodward: Well, I think certainly investment schemes will start and they will get to what Howard just mentioned. You know I think there’s some already out there of, you know, “invest in this company because it has a vaccine” or “it has a cure,” so we’re going to see all sorts of that type of thing.

Silverstone: I think once we get over the health side of this, right? So right now we’re getting these phishing emails and a lot of them are about where you can get certain drugs or whatever it is. But I think what’s going to be the left in the wake of this is a tremendous financial crisis.

I’ve been in the accounting world long enough to know when a financial crisis is looming, and we all know that we’re in a financial crisis. I mean you know some people will say, “Well, the stock market is only back to where it was in 2016,” but that’s not the issue. The issue is we’ve had a slow increase in the economy, a very positive increase in a bull market that’s got us to here, but the bear market has come in literally a week and taken it all away, and I think that’s the issue here.

That’s the issue where people are going to just prey on the susceptible, and you’re going to start seeing emails and ads you know, “Did you get affected by COVID-19? We can make you market-proof. Invest your money with us and we’ll make it market-proof,” and all this kind of stuff.

There are some people out there that are legitimate businesses and they work, but you’re going to see new people come along who’ve never heard of, and for all we know, they could be just new Ponzi schemes that we haven’t seen before, get rich quick. It could be any kinds of these things. But that’s why I think once we get over the health side of it the financial side preying on people’s financial weaknesses is going to be the next wave of fraud.

Woodward: I think so and then I think there’s another type of fraud that Howard and I will probably deal with. I don’t know that this won’t affect the general public. But I think if business interruption claims are allowed, and I think right now we don’t know to what extent they will be allowed, and what extent policies will cover the business interruption. I think some of that will be litigated. But if claims are allowed certainly CPAs and CFFs will have work available to kind of help — either help put those claims together for companies or for insurance companies to analyze them and to make sure that they’re not fraudulent and that they’re accurate.

Adamek: Are there fraud resources that you would recommend CPAs turn to?

Woodward: Yes. The AICPA has a disaster site or resource center that has just been put up in reaction to this crisis. It’s my understanding that it’s something that’s going to be maintained in the future. That is being used to accumulate some sources that are already out there, already exist, but then they also are pulling together like for example with this COVID-19 pulling together specific resources for this. I would also say federal websites like the Department of Justice or the FBI can be trusted.

Silverstone: Yeah, yeah. I know I’ve had a number of emails from my local … I straddle two states so my two local state societies have been sending emails with resources within those organizations who are available to assist CPAs and their clients. That’s where there is a lot of good information. That’s the thing you have to be able to sift through the good information and delete the bad information.

Woodward: Right. Yes, my state society is active as well. The state societies can be very effective in responding to the needs of people in that geographic area, which even though this is a national crisis. I know in my state we have a lot of practitioners who are in areas where they don’t have great cell service at their homes, so if you close their office it’s going to be difficult for them to work from home and that’s something that a CPA in a larger city might not have to deal with.

Adamek: What are some practical ways that you’re seeing that CPAs can help clients in this very challenging time?

Woodward: One, up until last Friday [at the time of recording] we were helping them try to get tax returns done in time for the deadline and did so. You know, we all kept our offices together to meet the March 15 tax deadlines, which were not extended. We are helping our clients who have had staffing needs. You know if they have clients out sick or clients who can’t come to work and they still need to get their payroll done, for example, so just helping with that.

This week [at the time of recording] we’ve seen a change to helping with cash management and projecting cash needs, working with banks to meet those needs in this uncertain time because we don’t know how long it’s going to go on.

Silverstone: I mean from my own personal situation, I sit on a number of boards, a number of nonprofits, and that’s one of the things we’re talking about is really understanding on two-, three-, four-week or longer basis how this is going to affect revenues, expenses, and really giving all of our experience that we can. Because you know a lot of business owners you know they conduct their business and don’t necessarily look at the nitty-gritty of some of the detail, and I think understanding the nitty-gritty in the next few weeks could make a difference to some of these businesses.

Woodward: I think so. Also, and this is maybe the softer side of it, it’s not the numeric side, but you know most CPAs regardless what they do with their vocation or with their certification they solve problems, that’s the one thing that we all have in common. I know some of the conversations I’ve been having with executive directors, CEOs over the last couple of weeks it’s all kind of about managing people, managing work environments, kind of all the different demands. So I think sometimes a CPA can be a voice of a peer that someone that runs a business can turn to for help.

Adamek: Elizabeth and Howard, thank you so much for joining us.

Amato: I’m Neil Amato, a senior editor with The Journal of Accountancy. You’ve been listening to my colleague, JofA Senior Editor, Drew Adamek speaking with Elizabeth Woodward and Howard Silverstone about fraud during the time of coronavirus and what CPAs can do to help prevent and detect fraud.