Businesses shouldn’t lose sight of fraud and corruption risks during disruption.

The impacts on consumer spending and customer preferences due to COVID-19 have led to an increase in the risk of fraud and corruption occuring in businesses operating in the consumer market sector. Increased financial pressures have, and will continue to hit consumers, and wrongdoers may look to seize opportunties created by the uncertainity.

While businesses haven’t seen impacts like the current experiences created by COVID-19 before, we can seek to draw lessons and insights from previous economic downturns, such as the 2007/8 Global Financial Crisis (GFC).

The current economic climate is providing similar, and potentially even more difficult challenges than the GFC, and in the consumer markets sector, the opportunity for fraud and corruption is high. Not only is there intense pressure on suppliers and constrained supply chains we examined earlier creating these challenges, but the financial pressure individuals are under often motivates fraudulent activity. This increased motivation, coupled with disruption of business controls, creates the perfect environment for increased fraud and corruption.

The current situation leads to an increase in the following risks for the consumer markets sector:

• The diversion of products being sold in one channel to another channel in order to claim undue benefit of price arbitrage between the two channels.
• Fictitious sales recorded under a program to claim higher benefits, or volume/slab discounts.
• Increased demand of essential products means damaged and/or expired products could be put into the supply chain by tampering the date of manufacture and/or changing the packaging.
• Consumer hoarding of essential products creates superficial scarcity and subsequently these products may be sold at inflated prices.

• Due to the perceived difference between supply and demand of essential products, counterfeit products could be injected into the supply chain. The general consumer is usually unable to spot differences between genuine and potentially fake products.

• The need to urgently identify alternative procurement channels due to restrictions on imports and domestic transportation could increase the risk of collusion between vendors and employees, which in turn could lead to supply of sub-standard quality material/services at higher prices.

• Facilitation payments, or gifts and benefits could be provided by third parties like transporters/channel partners to statutory authorities, to ensure smooth clearance and transition of goods during the lockdown period. This could potentially lead to violations of the applicable anti-bribery and corruption laws and regulations.

• Use of personal devices, unsecured networks and personal, unencrypted, email accounts are more prone to data breaches and cyber fraud. The increase in remote working could lead to targeted approaches by fraudsters, who are attempting to gain access to business accounts and networks.
• As workforces are sent to work from home, a spike in ransomware attacks could occur.

• Revisit your fraud and bribery risk assessments to ensure they remain current, and consider implementing low friction controls which keep your business moving while mitigating risk.
• Conduct appropriate due diligence on any new, alternative suppliers, and create management plans for higher risk suppliers.
• Examine and revise controls in finance and procurement processes.
• Deploy pro-active data analytics over high risk areas such as procurement, payroll, finance and sales, which can help identify red flags of any wrongdoing.
• Where misconduct has been identified, undertake an investigation. There are various investigation strategies which can be implemented in the current environment.
• Investigating wrong doings signals to others that fraud and misconduct will not be tolerated.

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