By: Imad Dakik, Director, and Danish Jaleel Shaikh, Manager, Risk Advisory, Deloitte Middle East

The COVID-19 outbreak has caused a global paradigm shift for every person, business and entity. Travel bans, employees working remotely, increased reliance on technology and economic uncertainty have become the reality. The pandemic has disrupted the traditional business models and has forced governments and organizations to adopt innovative measures to ensure continuity of business and curtail the impact of the pandemic. These measures range from digitization of products and services to creating an enabling environment for employees to work remotely. This rapid adaptation of established processes to manage the current situation however, has created new potential opportunities for fraudsters.

Under the pre-COVID-19 business conditions, the primary focus for companies was to grow the top line whilst managing the bottom line. Routine back-office activities such as paying bills and turning receivables into cash were often taken for granted. In the current situation, the focus of organizations has become more concentrated on liquidity and cash flow management. Some of the measures taken have been to reduce overheads (reduction of non-essential jobs) and reduce employee salaries. This would directly result in a diminished workforce and leading to risks such as lack of segregation of duties which, coupled with the presence of numerous logistical and operational challenges, could have opened the door for more fraud (Opportunity, Pressure and Rationalization, according to Cressy’s Fraud Triangle).

Business strategies and models are changing and executive management is more focused on operational measures to minimize the potential harm to businesses during these uncertain times, which was evidenced to have been correlated with a rise in the number of fraud cases. According to a recent survey from May 2020 on how fraud risks and anti-fraud programs are changing in the current environment, the Association of Certified Fraud Examiners (ACFE) found that 68% of respondents observed an increase in fraudulent activities whereas 93% of respondents expect an increase in fraud over the next 12 months.

The main question here is what should organizations do to enhance their fraud risk management capabilities? Following are some proactive steps that organizations may consider to respond to the changing fraud risk landscape:

  • Fresh perspective towards Fraud Risk Assessments: Organizations need to completely overhaul their fraud risk assessments in order to identify and mitigate emerging fraud risks emanating from the changes in the control environment caused by the ‘new normal’.
  • Enhanced third party due diligence: Ensure that the organization has a robust due diligence process over business partners that should have more emphasis on ethical standards of the counterparts.
  • Use of Artificial Intelligence (AI) and Machine Learning: Utilize data points and leverage domain knowledge through AI and Machine Learning to automatically recognize unusual emerging trends and patterns.
  • Encourage whistleblowers – Establish secure and confidential reporting channels that encourage whistleblowers to come forward and report any suspicions of fraud or misconduct. Organizations can leverage off independently managed whistleblowing services to institute trust of whistleblowers and help strengthen their governance and internal controls.
  • Customer and employee awareness: The use of social media by fraudsters to channel fake news, websites and products has increased as it enables reachability to a wider audience. Hence, it is imperative to create awareness on the new fraud trends to help customers and employees understand how fraudsters are attempting to benefit from the vulnerability created by the COVID-19 pandemic.

The evolution of technology has had a significant impact on fraud schemes. Trending fraud attacks are complex in nature, automated to an extent that a single person can launch numerous attacks on company servers. These are commonly done through the use of “bots”, where humans work with machines to challenge and defeat the industry’s “best” minds and tools.  The pandemic will likely be present for the foreseeable future. Organizations need to meet these new threats with the deployment of more robust and sophisticated fraud risk management techniques augmented with AI and Machine Learning technologies, to enhance their fraud prevention and detection capabilities against the hike in fraudulent activities during these unprecedented times.

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