Fraud is already taking off in corporate Australia just weeks into the COVID-19 shutdown, a survey of major companies and government sector organisations by KPMG Forensic has shown.
In the survey, covering mostly ASX200 companies, 7 percent of executives said they had already seen fraudulent or corrupt behaviour that they would attribute to COVID-19 era working conditions – and an overwhelming 83 percent believed their organisation was vulnerable to fraud taking place in the new working environment.
The poll of Chief Risk Officers, Chief Legal Counsels and Chief Internal Audit Executives also found that employees were regarded as the most likely source of fraud, just ahead of suppliers and contractors. 85 senior executives responded to the survey, which was performed on 16-17 April and included ASX companies, government agencies, multinationals and large private Australian companies.
Nearly half of respondents also said their organisations’ ability to investigate fraud or corruption allegations was ‘significantly’ or ‘somewhat’ inhibited by current circumstances, while almost a quarter revealed that anti-fraud prevention programs had been delayed due to the COVID-19 outbreak.
The major issues driving the rise in fraud in the COVID era were businesses being distracted and not focusing on controls, and widespread remote working.
Dean Mitchell, KPMG Forensic Partner, said: “We were expecting a rise in fraud cases later this year as the three classic fraud factors are all coinciding – opportunity, motive and rationalisation. But the fact that just weeks into this crisis we are already seeing significant levels of corrupt activity is surprising and quite worrying, especially as it comes at a time when companies report being less able to respond.”
“In the GFC we saw a clear pattern – reduced headcount, slimmed-down processes and controls, cut backs on internal audits and hastily restructured parts of the business created the perfect opportunity for fraud. The motive was there with people losing income. And the rationalisation was there too – a feeling of ‘I’ve given so much to this company, now I need a bit back’.” But the COVID era seems to be generating the same responses, at greater pace.”
“I’m sure widespread working at home has a lot to do with this as it puts internal controls under greater pressure and significantly increases fraud opportunity. Financial controls are not travelling well into the remote working world. Segregation of financial functions are vulnerable to override, the ability to verify if goods or services have been received is impeded and hasty ‘system work-arounds’ to get things done are becoming more common.
“This potentially compromises the overall integrity of the control framework. Businesses need to urgently review their existing financial control environment and implement increased transactional reviews, exception reporting or other controls, ideally through data analytics or other mechanisms.”
While the internal threat of fraud was clear from the survey, almost 95 percent of respondents also expected a rise in cyber fraud as a result of the crisis. Respondents reported an increase in scammers and hackers attacking their organisations.
The Forensic survey follows a KPMG poll of internal auditors last week which found internal audit teams in more than half of Australian companies were now undertaking, or were part-way through a ‘critical control’ review. Internal auditors reported being deployed elsewhere in the business and reviews of normal business risks being displaced in priority by COVID-related risks.