Housing association fraud risk increases with COVID-19

Growing risks

In January 2020, shortly before COVID-19 and the movement restrictions taking hold, the Regulator of Social Housing published its judgement against Red Kite Community Housing Ltd, as the provider fell victim to a payment diversion cyber fraud worth around £1m.

The concern is, if such a fraud could be committed against a formerly G1-rated provider, prior to the pandemic, the risk of future fraud being perpetrated against the sector – given the current situation – is likely to have increased dramatically. The reasons for this are:

• Remote working practices – as more people are working from home, the risks surrounding system security and safety can become more complex. There are new things to think about, including new protocols to implement and greater awareness training surrounding the risks required.
• Looming recession – as widely predicted by many, one of the main economic consequences of the pandemic will be a recession. It is historically proven that fraudulent activity and fraud risks increase significantly throughout a period of recession.

Looking at these risks through a practical lens magnifies a number of areas of potential increased risk. For example, it may be difficult to enforce an employees’ confidentiality at home, and they may be under increased financial pressures, due to external factors, such as your employees’ partners losing their job.

Pressure is well known to be a key factor in the onset of dishonest conduct however pressure can also cause distraction from following basic checks and procedures to prevent fraud.

Regulator recommendations

The Regulator of Social Housing’s judgement recommended that Red Kite Community Housing should take a number of key steps to improve some aspects of its governance procedures to support its continued compliance. These included:

• A more proactive approach is needed – including the implementation of a more robust control framework and a more detailed review of its processes.
• Given the ever-changing landscape of fraud and its evolving risks, regular reviews of this nature are critical to minimise the risks which housing associations face.
• Effective communication and continuous training are needed to ensure the whole team understands the fraud prevention framework and why it is important to follow.
• Leadership has a crucial role in overseeing the whole process and its effectiveness.

The Alternative Fraud Triangle

The traditional fraud triangle suggests that pressure is the key, driving factor of fraud. In this scenario, as people face increased pressure, they will often seek out the opportunity for self-preservation or self-betterment and use the pressures facing them to rationalise their actions. However, leadership’s pivotal role in creating that pressure internally is often overlooked.

Leadership has the power to directly influence an organisation’s culture – be it for better or worse. A negative working culture, rife with pressure to hit unrealistic job role requirements and demonstrate presenteeism (even remote presenteeism), can hamper team motivation and engagement. That engagement is key to successfully reducing fraud risk.

In the case of Red Kite Community Housing – and any other housing association looking to mitigate its vulnerability to fraud – leadership is key. Leaders need to ensure that any improvements to processes and procedures are reflected in the culture of the organisation, ensuring all team members adhere to these, recognise their importance and are adequately trained to identify the new and evolving risks.

Prevention is better than cure

In almost all cases, prevention is less costly than recovery after the event has occurred. Having a clear plan in place to deal with any instance of fraud is essential to mitigate losses – acting quickly is critical.

Some practical steps

Some ways in which housing associations can mitigate the risks they face include:

• Carrying out a detailed review the current control framework, ensuring all functions within the business are covered, including finance and IT functions.
• Implementing any changes needed as quickly as possible and communicating those changes throughout the organisation (via firm-wide emails, remote training, video conferencing, etc).
• Sharing regular communications within the whole organisation to encourage information sharing across the business.
• Issuing updates throughout the organisation regarding different types of fraud, what to look for and who to contact if there are any suspicions.
• Agreeing clear lines of communication with new and existing suppliers and customers, particularly regards changes to payment details.
• Sharing know-how in the sector (perhaps through designated representatives) of emerging scams, etc.

It is easy to see how fraudsters see the current crisis as loaded with opportunities for them. However, the best way to minimise the risk is to educate your teams about the risks and thereby cut fraudsters’ chances of success, but also to go further, have your teams help educate management about where they see weaknesses in their area of work that may cause a risk of fraud.

For more information, or to see how you can mitigate your fraud risk, visit www.tenetlaw.co.uk or email us at hello@tenetlaw.co.uk.