Preventing and Detecting Fraud During Times of Economic Uncertainty

As financial leaders know, if you have employees you have fraud. In fact, according to the most recent global study on occupational fraud and abuse, the typical organization loses 5% of annual revenue to white-collar crimes such as occupational fraud each year. From 2018 to 2019, that included:

• 2,504 cases of fraud
• 125 countries
• $1.5 million average loss per case
• $3.6 billion total losses

Those who have best-in-class travel and expense (T&E) programs know how to help their company combat and reduce overall fraud. But how much does fraud fluctuate when organizations, and the employees within it, are faced with economic uncertainty? Experts such as the Association of Certified Fraud Examiners (ACFE) admit it shoots up.

“Desperate people do desperate things,” said ACFE President James D. Ratley, CFE in a recent press release. “Loyal employees have bills to pay and families to feed. In a good economy, they would never think of committing fraud against their employers. But especially now, organizations must be vigilant during these turbulent times by ensuring proper fraud prevention procedures are in place.”

A whitepaper from Business Travel News (BTN) also advises the same caution, concluding from within their study of 50 CFOs that organizations are more susceptible to fraud when faced with economic and disaster risks. So, what can your organization do to prepare? And where should you be looking to find areas susceptible to fraud? Here’s why fraud is in focus for the majority of financial executives.

Spend control has never mattered more

While every organization must face the possibility of fraud and non-compliant spend, a report from the ACFE shows that fraud levels are expected to continue and rise. In fact, more than half (55.4%) of respondents stated that the level of fraud has already slightly or significantly increased in the previous 12 months compared to the level of fraud they investigated or observed in years prior. Why might this be?

Here’s how the ACFE’s latest findings on fraud breaks down:

• Nearly 60% of in-house certified fraud examiners (CFE’s) reported that their companies had experienced layoffs
• Layoffs are affecting organizations’ internal control systems
• A lack of internal controls contributes to nearly one-third of fraud
• Among those who experienced layoffs, 35% said their company had eliminated some controls
• The presence of anti-fraud controls is associated with lower fraud losses and quicker detection
• Only 3.2% of those same respondents said their company had increased controls
• 48% of respondents indicated that embezzlement was on the rise

Learn how to build an adaptable compliance program

Savvy companies understand there is a commitment to having a well-versed compliance program, and that often includes viewing spend control as a continuously evolving process. By taking the proactive steps to implement automated, internal controls, businesses can supplement human oversight with detective technology to help identify the red flags of fraud. Only then can finance executives and audit teams begin finding the “needle” in the haystack to unravel broader schemes within the areas of travel and expense.

In part two of our fraud series, learn how to build an adaptable compliance program, including the four steps businesses should be taking to bring employee spend into focus.