Fraud is an increasing concern in corporate Australia just weeks into the COVID-19 (Coronavirus) enforced remote working environment, a survey of major companies and government sector organisations by KPMG Forensic has shown.
In the survey, taken by mostly ASX200 companies, seven percent of executives said they had already seen fraudulent or corrupt behaviour that they would attribute to COVID-19 era working conditions – and an overwhelming 83 percent believed their organisation was vulnerable to fraud taking place now. The survey, which 85 senior executives responded to, was performed in mid-April and included ASX companies, government agencies, multinationals and large private Australian companies.
This poll of chief risk officers, chief legal counsels and chief internal audit executives also found that employees were regarded as the most likely source of fraud, just ahead of suppliers and contractors.
Nearly half of all respondents said their organisations’ ability to investigate fraud or corruption allegations was ‘significantly’ or ‘somewhat’ inhibited by the current circumstances, while almost a quarter revealed that anti-fraud prevention programs had been delayed due to the COVID-19 outbreak.
The major factors driving the rise in fraud in the COVID-19 era were businesses being distracted, not focusing on controls, and widespread remote working.
It is predicted that there will be a rise in fraud cases later this year as the three classic fraud factors all coincide – opportunity, motive and rationalisation. The fact that just weeks into this crisis we are already seeing levels of corrupt activity is surprising, especially as it comes at a time when companies report being less able to respond.
During the Global Financial Crisis we saw a clear pattern – reduced headcount, slimmed-down processes and controls, cut backs on internal audits and hastily restructured parts of the business created the perfect environment for fraud to take place. The motive was there with people losing income. And the rationalisation was there too – a feeling of “I’ve given so much to this company, now I need a bit back”. The COVID-19 era seems to be generating similar responses.
A driving factor of this could be that the workforce is working remotely which means internal controls are under greater pressure. Financial controls are not adapting well to the mass remote working environment. Segregation of financial functions are vulnerable to override, the ability to verify if goods or services have been received is impeded and hasty system work-arounds to get things done are becoming more common.
All these factors potentially compromise the overall integrity of a business’ control framework. Organisations should urgently review their existing financial control environment and implement increased transactional reviews, exception reporting or other controls, ideally through data analytics or other mechanisms.
While the internal threat organisations are feeling of fraud was clear from the survey, almost 95 percent of respondents also expected a rise in cyber fraud as a result of the crisis.
For full survey results, please download the infographic summary.