In April 2020, the Association of Certified Fraud Examiners (ACFE) issued the eleventh biennial
Report to the Nations on Occupational Fraud and Abuse, an in-depth study of the causes and effects of occupational fraud throughout the world. The stated goal of the report was to “compile detailed information about occupational fraud cases in five critical areas:
- The methods by which occupational fraud is committed,
- The means by which occupational frauds are detected,
- The characteristics of the organizations that are victimized by occupational fraud,
- The characteristics of the people who commit occupational fraud,
- The results of the cases after the frauds have been detected and the perpetrators identified.”
Based on survey data provided by certified fraud examiners (CFE) from 2,504 actual cases across 125 countries and 23 industry categories, the median response by CFEs of the annual loss to organizations from fraud is 5% of revenue, the same as in the 2018 survey. Applying that percentage to Gross World Product (GWP), the authors theorized that the potential cost of fraud worldwide is more than $4.5 trillion annually.
The survey covered the time period from January 2018 through September 2019, before the introduction of COVID-19 in early 2021. Consequently, the ACFE instituted a series of new surveys leading to reports in June, September, and December 2020, that assess the impact of the pandemic on fraud risks and anti-fraud programs in the prior month. The latest edition of the
Fraud in the Wake of COVID-19: Benchmarking Report was published on December 18, 2020.
The December 2020 edition of the quarterly report showed the trend from responses to twelve questions. The responses were evenly spread, with a quarter from companies with less than 100 employees, a quarter with more than 10,000 employees, and the rest in between. About half were from the United States. The vast majority of respondents perform fraud investigatory functions in the private sector, with about a quarter each coming from the banking and financial services or governmental and public administration sectors, with the others spread across the twenty-four industries surveyed.
The twelve questions focused on how COVID-19 is affecting four areas:
- overall level of fraud
- specific fraud risks
- organizations’ anti-fraud programs
- ability to fight fraud
The June edition already showed an overall fraud increase of 68%, while by December 79% of respondents were experiencing the upswing, with almost 40% indicating a significant increase. What’s more, most expect an even greater increase in the coming twelve months, with almost half anticipating a significant effect.
Of the twelve specific areas of fraud risk surveyed, all were found to be present and expected to increase. Cyberfraud was noted to be the most prominent. This area included business email compromise, hacking, ransomware, and malware. Other prominent areas noted were credit card fraud, fraudulent mobile payments, identity theft, and unemployment fraud.
With regards to anti-fraud programs, almost half of participants plan to increase their anti-fraud budget, increase or maintain their anti-fraud staffing, and spend more on anti-fraud technology, while only a small number expect decreases. Anti-fraud training and use of consultants will also increase, while, not surprising, the travel budget (because of COVID) for anti-fraud staff will see more decreases than increases.
About three quarters of the respondents indicated that the prevention, detection, and investigation of fraud were more difficult since the advent of COVID-19. The most prevalent obstacles involved physical restrictions, remote interviews, and lack of access to evidence.
Recognizing the increased complexities brought on by the pandemic and other pressing crises, KPMG in December 2020 published separate reports directed at audit committees and corporate boards, laying out several issues that will require expanded attention and diligence. Among the growing and increasing challenges addressed that surround the business and risk environment, are those that are fraud related.
Audit committees are called upon to “reinforce audit quality and understand the impact of COVID-19 on the external audit process.” Risk assessment, the internal control environment, and the impact of remote audit procedures must be re-evaluated. The Center for Audit Quality’s
Focus on the Auditor’s Risk Assessment is referred to as a good resource for new insights into a number of areas, such as cybersecurity, including data security in a virtual environment, and the heightened risk of fraud due to COVID-19.
The key role of internal audit is also considered for the prevention, detection, and remediation of fraudulent acts. Furthermore, a company’s ethics, compliance and whistleblower programs are called out for special attention, considering the added economic, physical, and emotional pressure that employees are dealing with during the pandemic.
Corporate boards are tasked with priorities that respond to the same concerns facing audit committees, while recognizing the board’s broader role of overseeing management as well as “keeping sight of the bigger picture.” For example, the board should ascertain that structures are in place to assure cybersecurity protection from fraud and for regulatory compliance. Also, readiness and resilience plans should be assessed for effectiveness for responding as incidents occur.
The International Ethics Standards Board for Accountants (IESBA) in December 2020 also issued guidance in two publications:
Navigating the Heightened Risks of Fraud and Other Illicit Activities During the COVID-19 Pandemic, including Considerations for Auditing Financial Statements, and
COVID-19 and Evolving Risks for Money Laundering, Terrorist Financing and Cybercrime. These documents cover similar themes as discussed above, along with fraud issues from improperly exploiting governmental COVID-19-related programs.
Further details can be found at
Fraud in the Wake of COVID-19: Benchmarking Report and
Navigating the Heightened Risks of Fraud and Other Illicit Activities During the COVID-19 Pandemic, including Considerations for Auditing Financial Statements.
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https://www.acfe.com/covidreport.aspx) and (
IRBA, IESBA and IAASB Jointly Issue Staff Guidance on Navigating the Heightened Risks of Fraud and Other Illicit Activities During the COVID-19 Pandemic | IFAC (ethicsboard.org).
