Be on the alert: Scams involving employee theft and embezzlement, cyber fraud, vendor payments, and more are on the rise—at a rate of 79% more fraud since May.
The Association of Certified Fraud Examiners (ACFE) spent the past year studying how the COVID-19 pandemic has affected business and employee fraud. The news isn’t good, unfortunately. As of November 2020, 79% of survey respondents said they have seen an increase in the overall level of fraud (compared to 77% in August and 68% in May), with 38% noting that this increase has been significant.
The respondents are primarily ACFE members who either work as in-house fraud examiners; are professional service providers who investigate fraud (like us); or are law enforcement, government, or regulatory agency professionals. They have seen fraud increase for businesses of all sizes, from small businesses with less than 100 employees to multinational corporations with 10,000+ employees.
Cyber fraud tops the list, with 85% of respondents seeing an increase in schemes like business email compromises, hacking, ransomware, and malware. Payment fraud, which includes credit card fraud and fraudulent mobile payments, have all increased. Identity theft, fraud by venders and sellers, health care fraud, insurance fraud, loan and bank fraud, bribery and corruption, and bankruptcy fraud have all increased.
Employee embezzlement and financial statement fraud have risen at an alarming rate, with about 70% of ACFE respondents expecting more to come in those categories in 2021. Changes in controls, due to a newly remote workforce and a lack of access to evidence due to pandemic shutdowns, may be contributing to those increases. In fact, most respondents noted that preventing, detecting, and investigating fraud have all become more difficult in the wake of COVID-19. More than three-quarters (77%) indicated that fraud prevention and fraud investigation are more challenging now than they were previously.
As we’ve reported before, fraud is expensive too, particularly for small businesses. In a separate 2020 study, ACFE found that, once again, small businesses are disproportionally affected. Businesses with fewer than 100 employees lost a median average of $150,000 compared to a $100,000 median loss for businesses with 1,000-9,999 employees. Certain fraud risks are also more likely in small businesses. They include billing fraud (2x higher), payroll fraud (2x higher) and check/payment tampering (4x higher).
How can you spot employee and vendor fraud before it’s too late? Consider starting with these tips and become your own detective. They include scrutinizing suspicious financials, out-of-character emails, staff who resist tighter controls, overly close vendor relationships, travel reimbursement irregularities, unusual employee requests, and big purchases.
But spotting this fraud is tricky. That’s why nearly half (48%) of organizations anticipate increased investments in anti-fraud technology, and 38% plan to increase the use of fraud-related consultants or other external resources. Budgets for anti-fraud training and professional development are seeing a similar increase (37% of organizations).
Once you suspect fraud is at play—or that the conditions are ripe for fraud to occur in your business—it’s important to invest in expert help. A forensic audit can uncover fraud that has been overlooked in other ways. It can be especially helpful during times of transition—before the sale of your business, a divorce, or other major event. Feel free to contact us with questions.