The increase in fraud in the context of COVID-19

The COVID-19 pandemic that caused the need for social isolation, brought with it the flexibility of intenal rules in most companies. Adding to this environment the potencial economic crisis, a series of lasting implication is expected, one of which is the coming periods. In this context, we highlight the need for companies to prepare and take appropriate measure to avoid and/ or combat them.

According to a survey by ACFE (Association of Certified Fraud Examiners) carried out with professionals in the field, after the 2008 recession, most respondents said they had seen an increase in the number of frauds, and 80% of respondents said they believed that levels of fraud actions increase in times of crisis. Another survey conducted in 2019, confirms that 42% of people who commit this type of crime, living beyond their financial means and 26% of people are facing financial difficulties at the time to comment on the fraud.

In times of economic crisis, when most employees are affected, it is possible to relate the individual’s fraudulent attitude to the model usually used to explain corporate fraud: the fraud pentagon. As such, it states that five factors are usually presente and lead a person to commit fraud: pressure, opportunity, rationalization, capacity and willingness to risk.

The personal financial pressures of employees tend to increase, just as during the recession one can expect not only more fraud, but also an increase in existing adulterations, because when the cash flow is compromised, fraudsters are no longer able to mask and/or cover up previously diverted resources.

A big mistake that companies tend to make in times of crisis is to cut areas that do not generate revenue. Cuts in anti-fraud programs and internal investigation end up leaving the company even more vulnerable, creating opportunities for the fraudster.

Along with pressure and opportunity, the individual’s rationalization appears, creating a possible personal justification for committing dishonest actions.

From the characteristics of the fraud triangle, two more actions appear that make up the pentagon, such as the capacity that the individual has and/or needs, such as, for example, operating a system to commit fraud; and the willingness to risk,

consistent with the individual’s assessment of the risks inherent in the action he intends to commit, that is, if there is sufficient willingness to risk, fraud will be committed.

In view of the factors mentioned and the moment we are living in, it is extremely important to maintain anti-fraud teams, to continue internal investigations and to hire auxiliary investigation teams, aiming to mitigate present and future risks, thus seeking to maintain health financial and corporate compliance enviroment.

Vivian Berton is Fraud Investigation Manager at HLB Brasil