Strategies to combat employee fraud during times of disruption

During times of economic downturn or recession, it’s possible to see an increase in employee fraud. It’s important that those charged with governance take the lead to address ethical issues within the organization and demonstrate an emphasis on mitigating fraud.

A fraud risk strategy should be developed to address exposure areas, while still enabling the organization to function efficiently. Every organization will operate according to their conventions, but all should include a strategy that is owned by senior leadership and includes action by individuals from across the organization.

Following are explanations of how fraud arises during times of disruption and strategies to help mitigate risk.

Three conditions for fraud

The fraud triangle, which was created by criminologist Donald Cressey, describes three conditions that increase the likelihood of fraud occurring:

1. Individuals engaging in fraudulent activity will experience some pressure to act.
2. There must be an opportunity to allow the act to occur.
3. The individual will often try to rationalize their actions.

Pressure

As individuals find themselves in uncertain situations during the Covid-19 pandemic, whether it be facing a personal financial struggle due to reduced pay, a spouse losing their job, or desire to help the organization succeed during hard times, the pressure to take advantage of an opportunity can be felt much more strongly. This can lead to unethical behavior.

Solutions

A whistleblower hotline is a valuable tool used to gather feedback from those closest to the action. Creating a hotline can provide employees or external individuals with an anonymous opportunity to share concerns of unethical behavior.

Opportunity to commit fraud

Despite many organizations regularly working to ensure strong internal controls, during times of change, internal processes and controls may not be reviewed or revised as quickly as change occurs. During the COVID-19 pandemic, many companies converted most of their workforce to a remote working environment, or furloughed a portion of their workforce. This is a significant change that required people and organizations to act quickly with little time to prepare or reflect.