Covid and Fraud Risk: Still Rising

We have another update on fraud risk during the era of Covid-19. The risk is still going up, and compliance and audit executives running anti-fraud programs still have a harder time stopping it. 

So says the Association of Certified Fraud Examiners, which published its latest fraud risk survey today. More than 2,000 anti-fraud professionals participated, offering their views about 12 types of fraud corporations are likely to encounter. 

All 12 types of fraud are on the rise. 

At best, some types of fraud are only marginally worse today than they were in the spring, when ACFE last conducted this survey. For example, 69 percent of respondents said in August that they’re seeing fraud from vendors, compared to 68 percent who said the same in May. That’s what passes for good news in the fraud world right now. 

Meanwhile, observations of embezzlement jumped from 33 percent in May to 42 percent in August, and insurance fraud went from 46 percent to 58 percent. Bribery and corruption, cyber fraud, financial statement fraud, bank fraud — all of them are up, and more respondents say they’re seeing “significant” increases rather than “slight” increases. 

So, um, yeah. Happy Friday. 

Figure 1, below, shows the sentiment about fraud risk overall. Note the larger increase in people witnessing significant increases in fraud, shown in dark navy. Forty-eight percent expect significant increase in fraud over the next year, which actually is down from 51 percent four months ago, but that’s still not much comfort. 

Anti-Fraud Programs

The ACFE report also provides a snapshot of anti-fraud programs right now. Fighting fraud is getting more difficult, either due to budget cuts or simply the challenge of running a fraud investigation during a pandemic. 

For example, only 14 percent of respondents say they expect their budgets to be cut during the next 12 months; 38 percent even say their budgets are likely to increase. (Everyone else expects a flat budget.) 

OK, those numbers could be worse given the dire economic situation — but meanwhile, anti-fraud activities are getting more difficult to do. Thirty-one percent of respondents said investigating fraud is significantly more challenging, and 21 percent said the same about detecting fraud. So even if your budget evades the CFO’s knife, the challenges in front of you are still getting worse. 

For example, Figure 2, below, is what survey respondents listed as their most significant anti-fraud challenges right now. “Inability to travel” was the most common obstacle, cited by 43 percent — and that’s up from 38 percent in May, when it was still the No. 1 obstacle. 

That isn’t a surprise, but now consider this: even while most respondents expect their overall anti-fraud budgets to stay flat or increase, 42 percent expect cuts to their travel budgets. Hence travel is such a headache.

The consequences of decisions like that keep coming. If you can’t travel to investigate a fraud personally, you’re more likely to rely on interviewing witnesses and suspects remotely — which is neither ideal nor easy to do. So we see more respondents now fretting about remote interviews and access to evidence, which are the second- and third-biggest headaches in Fig. 2. 

All in all, you can use the ACFE report to map out your likely challenges, and your consequence responses, for the next year or so. If certain types of risk are going to rise (vendor fraud or bribery), while certain types of resources dwindle (travel budgets for investigations up close & personal) — then what must your anti-fraud team become better at doing to succeed? (Remote interviews, e-discovery, forensic analysis). And what else would your company need to support that? (Better records management, videoconferencing tech that actually works.) 

That’s how the fraud world looks right now. We’ll see what’s new in January.