Research has shown that several areas of fraud risk have increased in the wake of the COVID-19 pandemic. Business Managers should know what types of fraud pose the greatest threat to the organization and develop appropriate internal controls to address these threats. If the company has recently updated its fraud risk assessment, use the results to guide your decision making. If the company has not updated its fraud risk assessment or has never performed one, this would be a good time to do so.
Fraud losses can be significant, and at times of financial stress, losses need to be kept to an absolute minimum. An investment in proper controls could save a lot more down the line.
Below are two potential fraud risk areas along with advice on controls that can be implemented to address those risks:
VENDOR FRAUD RISK
Purchasing departments might be inclined to skip some of the regular vendor checks in situations where a regular vendor cannot deliver on time and a substitute supplier is needed immediately.. In these high time and delivery situations, there may be a temptation to shorten the usual vendor screening process by cutting out some critical controls. Fraudulent vendors may approach the purchasing department requesting prepayments in advance of delivery of the goods or services, and then disappear without providing the agreed upon goods and services. Also, employees working in the purchasing department under financial stress may become susceptible to bribery.
Companies should strengthen the controls relating to the screening of new vendors. Organizations should increase scrutiny of vendors requesting significant prepayments ahead of providing any service or delivery of goods. Particular attention should be paid to new vendors without significant business relationships. and conduct open source research to ensure that the vendor is not a known fraudster.
INTERNAL FRAUD RISKS
In difficult economic times, management may decide to cut spending on its hotline or other controls to detect fraud. An effective reporting mechanism is one of the best anti-fraud measures a company may have. Tips are the most common way that fraud is detected.. Management should avoid the temptation to cut spending in these much needed areas. To get the most out of a hotline, revisit the company’s anti-fraud training for all levels of staff.
The COVID-19 pandemic has increased the incentive and opportunity for fraud in many areas of business. Proper internal controls need to be at the forefront of combatting this.