Posted: 11 Jun. 2020 10 min. read

COVID-19 transforms fraud and corruption risk

We report on four key fraud and corruption issues that are emerging as a result of COVID-19 – and what you can do about them.

In March, Deloitte launched its Australian Bribery and Corruption Report 2020 and was one of the first to warn the COVID-19 crisis could elevate the risks of fraud and corruption. Two months on, we report back on four key issues that are emerging – and what clients can do about them.

1. Fraud schemes are being exposed by the change in ways of working.

Radical change to both ways and locations of working is resulting in long-standing fraudulent schemes being uncovered. These abuses unfortunately have consequences that reach beyond the usual impacts of fraud – lost funds, reputational damage and regulatory implications - by diverting resources from critical frontline operations. To this end, it is critical that your staff know how and when to report a concern, and that you have:

  • An effective ‘whistleblowing’ mechanism to facilitate this
  • A clear, road-tested response plan in place to deal with the issue quickly, efficiently and effectively
  • Explicit fraud, bribery and misconduct policies that enable you to respond consistently and defensibly.

2. Organised fraudsters are exploiting assistance programs.

Fraudsters are targeting government assistance programs, and corporate programs to help customers - including those launched by insurers and banks - are also at risk. Some of these programs involve multiple organisations, and serious organised fraudsters are adept at exploiting the gaps between them. To work together to help those in our society most in need, we must also ensure that you:

  • Have carried out a risk assessment to identify how the assistance program may be exploited by customers or criminals
  • Are able to apply proportionate and effective controls
  • Are confident that your organisation is not falling into the ‘crisis trap’ where the urgency of delivery eclipses the diligence in risk and controls
  • Are reminding customers to treat communications from providers with caution
  • Are reminding them also to keep an eye on their bank accounts, superannuation funds, credit cards and insurance statements.

3. Insider, vendor and subcontractor fraud will increase.

In the wake of the Global Financial Crisis, Ebola in West Africa, and successive humanitarian emergencies like Haiti (2010), Nepal (2013) and the Philippines (2014), we have seen how exceptional economic conditions can lead to people making corrupt decisions. The ‘Fraud Triangle’ theory of dishonest behaviour explains that, with examples including:

  • A corporate executive who pays a bribe to win the contract that saves the company.
  • An employee worried about redundancy, who submits false invoices for an entity she controls to create her own ‘emergency fund’.
  • A supplier or subcontractor who cuts corners in their contract due to their own business pressures.

Proactivity is the key to stemming these incidents through:

  • Investing in data-driven detection to obtain early warning of potential issues with employees and third parties
  • Setting up procedures to deal with the potential volume of fraud, non-compliance or debtor related issues.
  • Adapting the way that you foster the right culture and promote the right values in your organisation, especially when most of your workforce is remote. 

4. A succession of fraud cases, especially from new products and services without appropriate risk management, will create reputational damage to organisations in the public, private and non-profit sectors over the next 12- 24 months.

Many organisations are launching important new projects, programs, products and services to meet market changes due to the crisis. But not all of these new initiatives are properly considering the risks of financial crime, particularly fraud and corruption. 

When the crisis abates, both the public and media are likely to explore how Australian organisations responded during the crisis. In our ‘reputation economy’, where your brand’s value can be so rapidly influenced by trust and integrity issues, this could lead to surviving one crisis only to encounter another.

To enjoy the most sustainable post-COVID growth and maintain stable reputations, organisations need to ensure they protect themselves by:

  • Considering financial crime risks properly and proportionately in new business planning
  • Articulating a risk-based, holistic, well-resourced enterprise framework to manage financial crime, including fraud and corruption
  • Championing the financial crime risk agenda at senior executive and Board levels.

More about the author

Oliver May

Oliver May

Director, Forensic, Risk Advisory

Oliver has helped organisations worldwide to prevent, detect and respond to fraud, corruption and misconduct. He specialises in integrity risk advisory services, anti-bribery and corruption, and the global non-profit sector. Oliver was formerly the in-house head of anti-fraud and corruption for a large international aid agency, and a warranted criminal investigator with the UK’s Serious Organised Crime Agency (SOCA, now the National Crime Agency). His book, Fighting Fraud and Corruption in the Humanitarian and Global Development Sector (Routledge, 2016) is out now, and a follow-up book on terrorist financing in international aid is due out in 2020.