The Fraud Examiner

How Post-Pandemic Accounting Fraud Could Lead to Another Market Crash
 

Mary Breslin, CFE, CIA
Founder and Managing Partner, Verracy                        


What if, as an executive, you could make your financials say whatever you wanted them to regardless of reality? How many would take advantage of that? Unfortunately for fraud examiners, that opportunity may be coming.

Change creates opportunities for fraud, and the past year has been a tidal wave of change for most organizations. When the shutdown began and everyone was forced to retreat to their homes and work remotely, most of us believed it would only be for a few weeks. Executives, board members and managers quickly made decisions to keep their businesses operating, with the expectation that we would all be back in the office and things would return to “normal” in a matter of weeks. 

That was a year ago.

Would those decisions have been different if they knew we would still be working from home? I think so. Some executives I have spoken with admit they knew decisions a year ago were “knee-jerk” or “not well thought out,” but they weren’t overly concerned with the new or additional risk it might create because “how much damage could really occur in a few weeks?” Truthfully, probably not enough to ruin a company. But, how about after a year? And to further increase the potential problem, many of these “temporary” or hastily made solutions are becoming permanent. I ask this question in my webinars and trainings all the time, and very few organizations are formally tracking the long list of “temporary” exceptions, process changes, expanded trust and workarounds.

As a result, many believe there will be an increase in fraud related to the pandemic. The ACFE’s Fraud in the Wake of COVID-19: Benchmarking Report supports this, and like many, I expect to see an increase in occupational fraud. Let’s take a look at these changes through the lens of the Fraud Triangle:

  • Opportunity — the extensive and quick changes many organizations implemented, and treated as temporary, have provided new opportunities for fraud. 
  • Pressure — many individuals have financial pressures, such as family members losing employment, health care emergencies and skyrocketing food costs. 
  • Rationalization — studies show that it is easier to rationalize committing a wrongdoing when you feel disconnected from your organization due to remote working. Others feel wronged by their organization based on how they have been treated while working remotely. Just think of the stories and articles you have read about employers demanding employees leave their camera on all day or have keystroke software installed.


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