4 minute read 16 Nov 2020
How to fight corporate fraud in times of corona?

How to fight corporate fraud in times of corona

Authors
Frederik Verhasselt

EY Belgium Forensic & Integrity Services Partner

Trusted fraud investigation advisor. Compliance professional. Team player. Problem solver.

Peter Leyman

EY Belgium Forensic & Integrity Services Executive Director

Fraud investigations. Due diligence investigations. Data quality and integrity. Forensic technology. Corporate intelligence. Litigation support.

4 minute read 16 Nov 2020

Awareness of risk is where you must start. This is not a luxury when we know that the number of fraud cases is increasing due to corona.

More cases of fraud are expected to follow the corona period. On the one hand, because the safety measures challenge a number of internal controls as people work from home. On the other hand, the pressure to commit fraud is increasing due to a deteriorated economic climate.

As a result of homeworking, there is almost no social control. This means that fraudulent actions will remain undiscovered for a longer period of time and will therefore increase in severity and frequency. To respond to this, companies need to pay attention not only to compliance (respecting the rules), but also to integrity (respecting the rules when nobody is watching). A sound fraud prevention and detection policy is certainly not an unnecessary luxury. However, this is often not yet a priority with companies.

The size of a company often determines its susceptibility to fraud; after all, it is the size that determines the opportunities.

What about differences between sectors?

When the subject of fraud and businesses is discussed, the question of how the various sectors relate to each other sometimes comes up. An interesting question in itself, but one that is not easily answered. It is, of course, true that some sectors are better regulated. Banks and the pharmaceutical sector are typical examples. Do not forget that organizations have already been convicted in the past. But more important than the sector is the size of the company. What stage is it at? A small family business is fundamentally different from a fast-growing player where there are simply more opportunities to defraud and the necessary formal controls are often lacking.

Experience shows that some sectors are more susceptible to fraud as a result of bribery. Just think of the construction sector. Another relevant element is if a company contracts with certain foreign governments, for example. Those who operate only in the Benelux or in immediate neighboring countries are confronted with a completely different reality than those who do business with, say, certain former Eastern Bloc countries.

Prevention through fraud awareness

Prevention is better than cure. Above all, this means being aware of the risk of fraud and creating a culture in the company where the subject can be talked about. In addition, a number of minimal fraud controls should be considered. Keeping third party account numbers secure is one such measure. Or ensuring that certain databases are properly protected. Also be aware that certain functions lend themselves more to fraud. Financial functions are obvious, those people know the systems. Do not lose sight of the motive, it is not always about enrichment. In particular in difficult times, like today, people can be tempted to manipulate figures in order to paint a nicer picture of a gloomy reality.

More detection in the future

Companies are getting better at keeping an eye out for fraud risks. This in itself is of course a good evolution. Moreover, the framework that enables a more efficient approach is also evolving in a favorable direction. For example, there is the European Directive for the protection of whistleblowers which was approved last year. This carries with it the obligation to provide a whistleblower system and sets out how this can be done anonymously, but also provides guarantees for the person who blows the whistle.

Trust is a very important part of this. That trust is based on guarantees that reports can remain anonymous. That is exactly what the guidelines ensure. In the past, the only way to signal something was to send an e-mail to an internal auditor or the Board of Directors. Once a whistleblower system worthy of the name has been set up, anyone can make an anonymous report. It is also then possible to communicate anonymously with the reporter.

Thanks to the European Directive for the protection of whistleblowers, there are more possibilities for reporting.

A solid fraud response plan as the final piece

When an organization is confronted with signs of fraud, it is paramount to respond appropriately by engaging independent fraud auditors to investigate possible irregularities.

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Summary

More cases of fraud are expected to follow this corona period. On the one hand, because the safety measures challenge a number of internal controls as people work from home. On the other hand, the pressure to commit fraud is increasing due to a deteriorated economic climate. A sound fraud prevention and detection policy is certainly not an unnecessary luxury. However, this is often not yet a priority within companies.

About this article

Authors
Frederik Verhasselt

EY Belgium Forensic & Integrity Services Partner

Trusted fraud investigation advisor. Compliance professional. Team player. Problem solver.

Peter Leyman

EY Belgium Forensic & Integrity Services Executive Director

Fraud investigations. Due diligence investigations. Data quality and integrity. Forensic technology. Corporate intelligence. Litigation support.