The aftermath of COVID-19: What can businesses do to combat the increased the risk of fraud brought about by the pandemic?

In a recent article for CICM magazine, Tenet founder – Arun Chauhan discussed the impact of fraud on creditworthiness and liquidity. In that article, Arun also assessed the factors contributing to an increased risk of fraud during the pandemic. Indeed, the key factor driving an individual to commit fraud is pressure, and there has certainly been enough of that felt both during the pandemic and beyond. At a time when many financial schemes are coming to an end, and the UK is facing an uncertain winter with increased household bills and cuts to universal credit, what can businesses do to protect themselves from fraud?

Summary

  • The key factor driving an individual to commit fraud is pressure and not as many consider, greed.
  • The pandemic created a perfect storm of pressure; pressure on businesses and employees alike striving for liquidity. This financial pressure looks set to continue for the foreseeable future.
  • Business leaders face pressure from shareholders (or themselves) to ensure their business survives and recovers; this can lead businesses to take on more risk or diversify their trade leading to an increased risk of litigation.
  • Many individuals have faced enormous financial pressure as a result of furlough or redundancy leading some to act out of character.
  • Homeworking has led to a weakening of controls frameworks, particularly around procurement and finance. Similarly, homeworking has also led to an increase in opportunities for fraud.
  • There are steps that businesses can take to protect themselves from the risk of fraud created by the pandemic.

Steps businesses can take to combat fraud:

  1. External controls

During the pandemic, many businesses were forced to diversify in terms of the products they produced or supplied, or in terms of the type of services they performed. This led to businesses working outside of markets and industries they knew, and has, in some cases, led to litigation. In principle, there is nothing wrong with businesses diversifying, but they must ensure proper checks and balances are in place. For example, ensure proper due diligence is completed for new suppliers, particularly those who have diversified themselves as a result of the pandemic. A review of contracts signed during the pandemic would serve businesses well in trying to head off any litigation risk. As always, proper professional advice should be sought when negotiating or varying contracts.

  1. Internal controls

Many businesses are now encouraging workers back into the office, but where employees remain at home, businesses must ensure that internal controls are in place and are being correctly applied. Simple things such as ensuring staff have a proper point of contact/supervisor day-to-day, and a proper process for airing grievances can make all the difference to staff morale and loyalty. IT systems need to be properly managed for remote working and IT security must be up to date and robust against cybercrime. Software is now available enabling management to check on staff communications and work product, which in some cases may be appropriate. Raising awareness of the risks of fraud in your business is crucial. Human beings are often seen as the weak link by fraudsters, who will target staff via emails hoping that someone somewhere will let their guard down. Training on IT security and spotting red flags is vital in protecting your business and confidential information.

  1. Financial schemes

Businesses must ensure that any government funded loans or grants have been properly applied, and any rules around their use have been adhered to. Failure to do so may lead to action by banks or HMRC against those businesses and individuals involved.

You can subscribe to the CICM magazine and read the full article here:  https://www.cicm.com/magazine-preview/

Should you suspect that you are a victim of fraud or other wrongdoing, please do not hesitate to get in touch at hello@tenetlaw.co.uk

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