How COVID-19 affects fraud investigations
Monday, January 18, 2021 @ 12:54 PM | By Margot Mary Davis and Jennifer Lynch
|Margot Mary Davis|
Scam artists and fraudsters do not take a break during pandemics or economic downturns. In fact, fraud becomes more common during tough economic times. The Association of Certified Fraud Examiners notes that more than three-quarters of its members cited an increase in fraud due to disruptions caused by COVID-19 and fraud cases grew dramatically following the 2008 recession. Fraud often increases during economic downturns because of the pressure to meet financial targets which leads to some employees falsifying financial statements, cutbacks to company anti-fraud departments and employees’ personal financial problems which might lead them to steal from the company.
Fraud examiners might find their services are increasingly in demand due to COVID-19 but they also might wonder how to best provide services during the pandemic. In the below section, we will provide some helpful advice for certified fraud examiners (CFEs). We will discuss COVID-19 specific fraud to look out for, challenges that COVID-19 will place on CFEs conducting investigations and anti-fraud policies that CFEs should recommend to clients.
COVID-19 specific fraud
Fraudsters will find specific ways to “cash in” on COVID-19 pandemic. Fraud Magazine, published by the Association of Certified Fraud Examiners, notes that COVID-19 fraud schemes could include employees forging signatures on cheques, CEOs bribing government officials to obtain COVID-19 related contracts and corporations deducting COVID-19 related expenses over several periods instead of deducting them immediately. Additionally, some employees may unwittingly help scam artists. Since the outbreak of COVID-19, there has been an increase in phishing e-mails with “COVID” in the subject headline and e-mails impersonating co-workers. Fraudsters will probably conceive of additional COVID-19 related scams in the near future.
Certified fraud examiners need to stay on top of the various fraud schemes related to COVID-19. They should consult trustworthy news sources, like professional associations’ news releases, that keep an updated list of new scams. This way, if asked by a corporation to investigate fraud, they will know what to look for and can provide high quality investigative services.
COVID- 19 challenges to conducting investigations
COVID-19 will make it harder to investigate allegations of fraud. In a recent study conducted by the Association of Certified Fraud Examiners, 77 per cent of investigators stated investigating fraud was more difficult since the advent of COVID-19. Now, investigators are not able to access certain workplaces and some investigators have stated that was “invaluable.” Relatedly, investigators note it is easier to check the authenticity of a hard-copy document than a scanned copy of a document. Investigation teams will have the challenge of ensuring remote access to documents (evidence) while also complying with relevant privacy and confidentiality legislation.
While social distancing orders will present a variety of challenges to investigators, the particular challenge that they present is the inability to do in-person interviews. Experienced investigators note that it is easier to assess credibility during an in-person interview compared to a remote interview. Additionally, remote interviews raise concerns relating to confidentiality.
Although COVID-19 makes it more difficult to investigate accusations of fraud, it is the new normal. Therefore, investigators and investigative teams will have to adapt their investigative techniques to the current reality. Ching Liu, the director of Control Risks’ compliance, forensic and intelligence team, states that investigation teams should “develop a model for data [remote] access and ensure that the processes and protocols that you have for in person investigations can be enlarged to suit remote needs as well.” While remote interviews are inferior to in-person interviews, Brian Mich, a former prosecutor, notes that preparation is especially useful when conducting remote interviews. Investigators conducting remote interviews can allot greater amounts of time to prepping for interviews than they normally would.
Anti-fraud policies to suggest to clients
The threat of fraud will always exist but organizations can take proactive steps to ensure that they are less likely to be victims of fraud. Certified fraud examiners have always played a role in developing anti-fraud programs for businesses and now, they can create anti-fraud programs that address the new normal.
Fraud examiners should recommend to businesses that they do not cut funding to any prior existing anti-fraud programs, that they send biweekly e-mails to employees informing them about current phishing scams, that they adopt anonymous whistleblowing policies and they host webinars about cybersecurity when working remotely. Additionally, businesses should ensure multiple employees handle bookkeeping and frequently review accounts to combat internal fraudsters.
Anti-fraud programs also must address employees’ morale and financial concerns. As previously mentioned, employees face increased personal financial stressors during economic downturns. Their spouse’s employment may have been terminated and they may now be the sole breadwinner for the family. Personal financial troubles may lead to employee theft. Businesses should try to not cut pay, institute, if possible, COVID-19 bonuses, and let employees know that they care about them. For example, they could send employees gift certificates to popular coffee shops. Employers should regularly thank their employees during COVID-19 and acknowledge that it is a stressful time.
Due to COVID-19 and its impacts, certified fraud examiners will most likely find themselves in increasing demand. Fraud examiners need to remain one step ahead of fraudsters during the new normal. Looking out for new types of fraud to watch out for, adopting new investigative techniques and recommending companies create policies that address the risk of fraud are all ways of being a step ahead.
Margot Mary Davis is a 2018 Ontario call to the bar. She is interested in policy issues surrounding law like combating counterfeit goods and developing sui generis policies for orphan drugs. She is also a published author. Jennifer Lynch is an expert witness and forensic accountant at Lynch & Associates, Forensic Accountants. She practises in the areas of personal injury and wrongful death claims, matrimonial disputes, partnership disputes and fraud examination. She holds Chartered Professional Accountant, Certified Management Accountant, and Certified Fraud Examiner designations. You can reach her on LinkedIn.
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