Could a pandemic potentially increase the likeliness of fraud?

The answer is probably yes.

Looking at how we are going to audit remotely and work remotely, we must consider what in this new environment can be manipulated so that we miss a fraud?

We have seen this story in several cycles, many emerging during a downturn. The large frauds have been going on for several years. When the economy is good, and cash is accessible – either through equity or debt financing, it is easier to continue to perpetrate financial fraud. When you have a downturn in the economy and those cash capabilities tighten up – that’s when frauds begin to unravel – fraud relies on continued access to capital.

The Royal United Services Institute (RUSI) think tank has recently suggested in a BBC article that the fraud has reached epidemic levels in the UK and should be seen as a national security issue. The digitalisation of everyday life – accelerated by the current pandemic – has only increased these risks.

The new report argues that the scale of fraud against the private sector has a serious impact on the reputation of the UK as a place to do business. Despite the growing scale of the issue, there is no national strategy for tackling the issue making it “everyone’s problem but no-one’s priority”.

Take Wirecard and Luckin Coffee for example – two high-profile frauds that provoked much discussion:

Wirecard: The German payments company, Wirecard revealed auditors could not trace €1.9bn supposedly held in escrow accounts at two Asian banks. Wirecard claimed that the cash probably does “not exist”. Regulators, including the German banking regulator were slow to act and in fact primarily focused their enquiries into the whistle-blowers and short sellers of Wirecard stock, rather than Wirecard themselves.

Luckin Coffee: Expanded to take on Starbucks in China and attracted big-name investors like Blackrock and Singapore’s sovereign-wealth fund. On April 2, the Nasdaq-listed Chinese chain announced an ongoing internal probe amid allegations that its chief operating officer and other employees may have fabricated over 2bn yuan ($280m) in sales. It’s also worth noting that the embattled coffee chain has recently filed for Chapter 15 bankruptcy in New York to halt U.S. lawsuits during restructuring talks – you must ask yourself, was it worth it?

These two examples will not be the last and such stories will emerge in some form again in the future.

What auditors need to know and how they can prepare for the unexpected

Auditors have a significant part to play in fraud detection and firms need to get serious about their responsibility in finding fraud, especially in current remote working conditions.

At a webinar hosted by Inflo and Confirmation last year, this sentiment was reflected by the audience, with 62% of them agreeing that auditors should have a greater responsibility in detecting fraud.

Firms should be looking at their technology – fraudsters are some of the earliest adopters of technology, looking to stay one step ahead of authorities and auditors. Firms need to look at tools that can be used to strengthen controls.

If you want to find out more about any of the topics in this article or learn about how Inflo helps auditors identify truly risky transactions, please fill out and submit the form below. Alternatively, to get started on your Inflo journey, sign up for Inflo for free NOW.

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Inflo Digital Audit: The world’s first data driven audit platform

Inflo Digital Audit: The world’s first data driven audit platform

In conversation with Donny Shinamoto

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