COVID-19 and the Fraud Triangle

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COVID-19 and the Fraud Triangle

COVID-19 has created the perfect storm for fraud being committed

The COVID-19 pandemic has only worsened an already bad economic climate for many countries around the globe. The forced lockdown and restrictions has brought many world economies to a standstill.

It is widely expected that many businesses will not recover from the impact of the forced closures. Many jobs will also be lost in the process. Companies are quickly coming to the realization that many overhead expenses can be dispensed with, without affecting productivity significantly, this will be critical to ensure survival.

The unfortunate reality is that coupled with these growing challenges, more so, from a humanitarian and economic perspective, such an environment creates the “perfect storm” for fraud being committed. Figure 1 below is the famed Fraud Triangle of criminologist Donald R Cressey to explain why people commit Fraud.

COVID-19 and the Fraud Triangle

Pressure

  • The number of unemployed individuals are increasing with layoffs.
  • Stock prices of companies are being affected with many still trying to make their numbers and targets.

Opportunity

  • Many companies are downsizing to ensure their survival. However, this is impacting on internal controls, checks and balances.
  • There are increasing number of individuals working remotely, this creates increased threats from a Cybercrime perspective.

Rationalisation

Many companies have withdrawn incentives, bonuses and benefits. This has increased the rationalization for committing fraud which has only been exacerbated by instances of reduced pay.

What can be done in the Interim?

There are many traditional interventions that could be employed but testing times like the present require a much more focused and proactive effort to detect and prevent fraud.

Fraud Risk Assessments

The purpose of a fraud risk assessment is to help a company identify what makes it most vulnerable to fraud. Through a fraud risk assessment, the company is able to identify where fraud is most likely to occur, enabling proactive measures to be implemented to reduce the chance that it could happen.

Testing using Data Analytics

Data Analytics allows for the identification of outliers, anomalies trends and exceptions within data. These assist in identifying red flags and address areas that pose the greatest risk; this is to find potential footprints of fraud or data error.

Specializing in the creation of custom models and analyses, the Forensic Restitution team works to identify, expose and demonstrate relationships, trends and patterns within complex and seemingly disparate data sets. This information can be used to aid litigation or criminal investigations.