Fraud in the Time of COVID-19

April 16, 2020

By Elliott Lee and Maureen Egan

To say that the U.S. economy will suffer significant losses from the COVID-19 pandemic is an understatement.  As businesses scramble to assess working capital needs and secure short-term liquidity, the topic of fraud is likely one of the last items on a laundry list of critical concerns.  Unfortunately, history has proven that in times of economic downturn, the risk of fraud is increased.

Not surprisingly, the Federal Trade Commission has already issued warnings to consumers and businesses about numerous COVID-19 related fraud schemes, some of which appear in our past blog post “Don’t Let Fear and Confusion Lead to Fraud.”  

With an unprecedented number of businesses switching to remote working environments, managing fraud risk during the COVID-19 pandemic presents unique challenges that may not have been contemplated during the design of existing fraud prevention protocols and controls. Our recent webinar on The Risks and Opportunities in Transitioning to a Remote Workforce addressed these challenges and offered strategies for addressing them.

Of equal concern is that existing fraud prevention protocols and controls are no longer being followed due to the disruption of standard workflows.  Fortunately, a few basic procedures can help most businesses mitigate their exposure to fraud during the COVID-19 pandemic. 

The most simple and cost effective measure is to re-examine existing policies and procedures designed to prevent or detect fraud.  Are current policies effective given that your workforce may be operating from various remote locations?  Are employees aware of these policies and procedures?  Now may be as good a time as any to take active steps to reinforce key fraud prevention policies and controls.

A key area of focus when re-evaluating existing fraud prevention controls in the new COVID-19 work environment should be segregation of duties. As previously mentioned, with a significant increase in work from home (WFH) arrangements, existing controls and procedures may have been altered or adapted.  As a result, gaps in controls may now exist that provide a greater opportunity for certain employees to misappropriate assets. When changing processes and procedures in response to new COVID-19 work arrangements, take strides to see that emergency response measures are not implemented at the expense of proper segregation of duties.

An assessment of employee incentives, pressures, opportunities, attitudes and rationalizations should also be conducted.  Work incentives may not be aligned with business goals and objectives that, by their nature, create pressures within an organization. There also may be excessive pressures on employees to achieve unrealistic performance targets, particularly in the short-term. When coupled with a weak control environment, such pressure creates opportunities for fraudulent behavior, along with attitudes and rationalizations that may justify such actions.

Businesses that do not have formal fraud prevention policies and procedures in place can conduct a simple fraud risk assessment by considering and evaluating their core accounting cycles and business processes, while thinking about which controls are in place to safeguard key assets and mitigate the risk of theft or loss.  Where controls are potentially deficient, interim measures should be contemplated and implemented.

During difficult economic times an organization’s internal controls are put to the test.  Having a sound set of policies, procedures and culture where the tone at the top promotes integrity and holds employees accountable will go a long way to protecting critical assets and weathering times of uncertainty. 

Additional information on actions and conversations you should be having in light of COVID-19 are accessible here.

About Elliott Lee

Elliott Lee is a Partner in the Financial Advisory Services Group providing litigation consulting and forensic investigative accounting services for civil and criminal cases dealing directly with law firms and insurance companies.

About Maureen Egan

Maureen Egan is a Director in the Financial Advisory Services Group working closely with clients and their counsel to understand and develop strategies to address complex financial, accounting and economic issues.

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