5 minute read 7 Apr 2020
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How to maintain a culture of integrity during the COVID-19 pandemic

By Andrew Gordon

EY Global Forensic & Integrity Services Leader

Global Forensics Leader focusing on helping organizations build their integrity agenda so they better anticipate and mitigate risk.

5 minute read 7 Apr 2020

With COVID-19 creating a heightened risk of fraud and unethical behavior, how can organizations maintain integrity in these disrupted times?

We are in the middle of the fastest transformation the global economy has ever experienced. The coronavirus (COVID-19) pandemic has resulted in billions of people not being allowed to work and having to stay at home. Millions of people face unemployment, and governments are working day and night to provide financial and medical support. It’s also an incredibly testing time for the functioning of organizations.

Employees at companies around the world are still trying to be productive and perform their jobs from remote locations. Employers are concerned about the health and safety of their staff, but also whether their organizations will survive. In this context, companies must resist the temptation to sacrifice their controls, systems, governance and appropriate culture in adjusting to the new realities of COVID-19.

Fraud risk factors increase at a time of crisis because companies and individuals face more financial pressures, the opportunity for fraud increases if key internal controls weaken, and people find it easier to rationalize their actions. All fraud requires these three elements – opportunity, pressure and rationalization – to be present (known as the Fraud Triangle). COVID-19 offers all three and more.

The pandemic has potentially compromised the ability to undertake effective compliance monitoring, supervision and oversight, creating an opening for criminal and unethical behavior. The danger is that multiple layers of governance processes, previously effective controls and oversight of employee and management conduct are all relaxed – possibly in the name of business continuity. At the same time, the organization’s wider integrity culture comes under threat – the end is used to justify the means.

Companies must resist the temptation to sacrifice their controls, systems, governance and appropriate culture in adjusting to the new realities of COVID-19.

Government funding and fraud

The current environment is seeing millions of job losses and a severe economic downturn, which could provide apparent justification and pressure for previously unthinkable actions. Meanwhile, the unprecedented flows of funding about to be made available by governments to support organizations and individuals at short notice through untested procedures create a vast new canvass for fraud and embezzlement.

With entire industries moving to remote working as “virtual” businesses, the risk of cybercrime has also increased. Already we have seen disturbing reports of phishing attacks requesting payments for non-existent quarantine fines and other scams, including fraudulent requests from an accounting or a finance department or leader to approve an invoice payment, a journal entry, or other transaction.

Sometimes these are old scams with a “new skin”, while ingenuity is also creating new ways to deceive the housebound. Some hackers are sending messages that claim to have attachments with vital information or links to government websites – but which instead have more malicious intent (clickbait). More sophisticated attacks may look to use this information for industrial espionage or to penetrate information security with employees logging in remotely.

Business can’t stand still for companies continuing to operate in this environment, especially as scientists and governments are advising that it may be many months before things return to “normal.” With widespread remote working, an added challenge is how to make changes and adjustments needed in the course of business.

It is important that businesses can provide confidence to shareholders, customers, suppliers, lenders, and employees about the company’s long-term future through resilience processes.

That may mean additional reliance on electronic or digital processes when traditional in-person verification in supply chains remains impossible, or relying on local contractors. Never has operating with a culture of integrity been more important than during this moment of crisis.

Those who lead in integrity will differentiate themselves as seldom before, and those who do not are likely to be held accountable after this crisis has passed.

Importance of integrity as a differentiator

Some will argue that now is the time for less specific attention to integrity, as business survival and economic recovery will require more concentration on the “animal spirits” of enterprise. In fact, the stresses of the crisis, and what may be an uneven, jagged recovery, will underline the importance of integrity in underpinning a company’s business relationships and managing risks.

Those who lead in integrity will differentiate themselves as seldom before, and those who do not are likely to be held accountable after this crisis has passed for any abuse of trust by unforgiving stakeholders.

Business leaders therefore need to think carefully about building and sustaining an integrity agenda at their organizations under four headings: governance; culture; controls and procedures; and data-based insights. They should then ask a series of important questions:

  1. Is the guidance on appropriate conduct clear, consistent and adequately communicated?
  2. What more can be done to reinforce the right tone from the top?
  3. Where there have been job losses, is the segregation of duties still effective, and does management understand the need for increased supervision and review in the interim?
  4. What processes exist to identify when a management bias in accounting estimates crosses the line and becomes inappropriate accounting?
  5. What are the processes to manage a possible breach of debt covenants?
  6. If earnings targets are likely to be missed, what is the process to ensure that: revenues are not recorded prematurely; expenses are properly accrued; and inflated provisions or accruals are not established to achieve targets in later periods?
  7. How can we best encourage our people to “do the right thing” when faced with new financial or ethical dilemmas in the context of this crisis?

Audit committees particularly need to be alert to the heightened risk of fraud at this time. They should discuss with both internal and external auditors and consider whether expanded audit procedures are required to help mitigate the risk of increased fraud, bribery and corruption, money laundering and wider economic crimes.

Getting ready for a return to growth

There is going to be an end to this crisis. The vast majority of organizations have responded appropriately and fairly to the challenges faced and have treated their customers, suppliers and employees with respect. However, organizations must continue to have an eye towards what is on the other side and ensure they continue to exhibit high levels of integrity today and beyond.

As emergency support measures gradually unwind, and competition reasserts itself, the attention of society on responsible business is going to be greater than ever. Without addressing the questions above effectively, it will be difficult to maintain a culture of integrity in this extraordinary time. The danger is that fraud (and ethical) issues will come to light in the next three, six or 12 months.

Now is the time to dig deep and maintain high standards, to recognize the potential new ethical threats this situation is generating, and to prepare the foundations for renewed business growth anchored in an appropriate culture of integrity.  

Summary

The COVID-19 pandemic has potentially compromised the ability of companies to undertake effective compliance monitoring, supervision and oversight, creating an opening for economic crime and other unethical behavior. Andrew Gordon, EY Global Forensic & Integrity Services leader, calls on companies to resist the temptation to sacrifice their controls, systems, governance and appropriate culture in adjusting to the new realities of COVID-19. He suggests seven questions that organizations should be asking to ensure that they maintain a culture of integrity in these difficult times.

About this article

By Andrew Gordon

EY Global Forensic & Integrity Services Leader

Global Forensics Leader focusing on helping organizations build their integrity agenda so they better anticipate and mitigate risk.