The pandemic has upended the way we work and created an environment that gives employees or other parties the opportunity and incentive to commit fraud.
Michelle Muir, a valuation, forensics, and litigation senior manager at BST & Co., CPAs, said she's seen the number of fraud cases increase in the Albany area over the last few months.
The combination of the financial and health threats brought on by the pandemic, she said, makes people and organizations more vulnerable to fraud — and makes it more likely for fraud to occur. In her role, Muir helps clients with forensic accounting, including fraud investigations and business valuations.
We spoke with Muir about why fraud is increasing and what companies should do to prevent it from happening.
Have cases of fraud in the Albany area increased this year? What I've seen is an increase in the last five to six months of fraudulent cases we’re working on. The Association of Certified Fraud Examiners, recently conducted a survey that showed at least 51% of organizations have uncovered more fraud since the onset of the pandemic. And 71% expect that fraud to increase in the next year.
What is driving that increase? It's the shift in the business operations, from working in the office to working remotely, and the shift in consumer behavior to more online transactions. With remote work, you need internal controls to monitor how business operates and some of the internal controls are not operating as they have been or should be in an office environment. That includes segregation of duties, management review of certain transactions or bank reconciliations. The shift in consumer behavior to online transactions opens up susceptibility to cyber issues. With the supply chain disruptions, companies are feeling pressure to onboard third parties quickly that aren’t fully vetted to get the supply chain moving. There are opportunities for collusion, submitting duplicate invoices, invoicing for work that’s not done. Employees can take advantage of that supplier disruption.
What types of fraud have you seen locally in recent months? There have been a couple of nonprofits. Nonprofits, even before the pandemic, had fewer resources. When the pandemic hit, there’s less resources available to help them recover from a fraud loss and less antifraud controls in place. Another industry I've seen is construction real estate, the costs have skyrocketed. There’s questions surrounding excessive billing, is it supply chain or pandemic related? Some clients contacted us with respect to excessive billing. There's issues on the federal funding side of things too with the Paycheck Protection Program — a study said about 15% of all PPP funds are fraudulent.
Can you give an example? There’s a check tampering scheme where an internal controller is writing checks to vendors, but after those checks are in the system, they go change them to have his/her name as the payee. That can continue because there hasn’t been any review of those transactions or segregation of duties. There's a lot of check tampering schemes.
