The rising threat of opportunistic fraud

I was looking through media articles as I do regularly, and a story caught my eye. It was about a convenience store selling Rapid Antigen Tests at an exorbitant mark up. Supply and demand were discussed, as was the thought that this is the type of behaviour we want to avoid. Since we are all in this together, this type of behaviour is the antithesis of what we should be seeing.

Enough about Rapid Antigen Tests.

This led me to think about businesses and the impact that the opportunistic fraudster might have during this unprecedented period, as we navigate the challenge of operating a business in a COVID-19 environment and beyond. The Fraud Triangle[1] details that those motivated to commit fraud within an organisation will succeed when opportunities present. The relaxation of the control environment – which can help keep things moving within a business, presents such an opportunity for internal fraud.

Trust in Your Organisation

As businesses we all need to operate with a high degree of trust in our people. That trust however, cannot be unconditional and needs to be balanced with an appropriate level of control in relation to key activities of the business. As I tell many clients when I am conducting training or attendees at a seminar—trust is an emotion—not a control. After more than 30 years’ experience in dealing with people who act dishonestly inside a business, I also caution that employees are only as honest as their circumstances allow. It is a wise thing to remember that a high percentage of fraudulent and corrupt activities that impact businesses are committed by trusted insiders.

Why Does Opportunistic Fraud Occur?

As businesses strive to stay afloat, it is inevitable that jobs will be cut to assist in this regard. This will mean that levels of control are eliminated from key processes, such as procurement and payroll. We will see people with limited experience taking on new roles and key controls. Segregation of duties will be weakened to some extent, or in some cases eliminated, in an effort to keep things moving with reduced staff numbers.

In terms of opportunity, fraud is more likely in businesses where there is:

• A weak internal control system
• Poor security over business assets
• Limited likelihood of detection
• The lack of clear and effective reporting methods
• Unclear policies in relation to the behaviour expected of employees.

It is therefore imperative that business owners, managers and employees understand the role they play in the prevention of fraud and corruption within the business. The prevention of fraudulent or corrupt activity is generally more cost-effective than an investigation following the detection of fraudulent or corrupt activity. Such activity commonly impacts your business financially and perhaps even affects your marketplace reputation. Let’s face it, at times like these we can ill afford to drive customers away because of negative media, nor can we afford to lose our hard-earned trust and position to the fraudulent opportunist’s behaviour.

How Can You Take a Proactive Approach Against Fraud?

Here are some things that you can do to ensure that you keep protecting the assets and revenue of your business during this unprecedented time:

1. Ensure that there is an adequate segregation of duties between functions in the business;
2. If the ability to maintain normal segregation between functions is impaired by staff reductions etc, look to implement a workaround that allows for some overarching supervision of these activities
3. Follow up any identified anomalies as soon as possible, and ensure that someone in the business is accountable for doing so
4. Gain a better understanding of any gaps in your control framework and look to plug those gaps
5. Ensure that you take steps to properly secure assets (including property) in your business
6. Ensure that your employees are aware of their obligations and the policies and procedures that relate to their behaviours
7. Ensure that your employees are aware of their obligations, policies and procedures in relation to the use of company assets (cars, other vehicles, credit cards and other supplies)
8. Create a framework in which employees feel comfortable in raising suspicions concerning unethical behaviour — including having effective whistleblowing systems and processes which allow employees to report anonymously
9. Take prompt action in relation to identified fraudulent or corrupt activity.

The above is not a comprehensive list of control activity to prevent, detect and action fraud. It is merely some thoughts on what can be done to protect your business at a time when every dollar counts.

It is a bitter pill to swallow that fraudulent behaviour increases when circumstances allow, but it is one that must be acknowledged. Survival through these trying times is highly dependent on internal diligence.

If you need advice on the identification and management of opportunistic fraudsters in your organisation contact the team at PKF Integrity today.