Insights

Is Fraud Coming From Inside the House?

PKS CPA

You’ve probably heard about an increase in cyberattacks and external fraud schemes in 2020 as many employees work from home on computers that may not be as secure as the technology in your office. What hasn’t gotten as much attention is the pandemic’s effect on occupational fraud. And in fact, remote workers may present your business with new challenges when you don’t likely have the time or resources to focus on them. For example, current conditions may make it easier for employees to conduct and rationalize fraud. Here’s what you need to know about an evolving threat landscape.

Strange Days

As businesses have adapted to pandemic circumstances, they may have reduced their adherence to established internal controls. To alleviate the challenges of remote work and maintain business productivity, some companies have enabled shortcuts. For example, a company may suspend bank account reconciliations. This can make it easier for employees to commit fraud by forging checks on company accounts.

Empty offices and other workspaces can also contribute to fraud. Employees may no longer be able to complete tasks that require access to a facility, such as conducting a physical inventory count. Instead, the company may rely on its inventory accounting records. Without actual oversight, a scheme may be allowed to flourish.

Another fraud risk: Many employees working from home are experiencing new types of stress. Feelings of isolation or frustration due to round-the-clock family responsibilities can make workers act in ways they might not in better circumstances. In addition, employees may feel resentful about being asked to work harder because colleagues have been laid off.

These, as well as new financial concerns — for example, if an employee’s spouse has lost his or her job — may make it easier for someone to rationalize cheating or stealing. For example, employees might be more likely to artificially inflate time sheets or expense reimbursement reports. Third parties can also expose your business to fraud. Employees at other companies that have been forced to make operational changes similar to your own, may find it easier to submit fraudulent invoices to your company.

Working With the New Normal

How should you respond to these new realities and keep fraud at bay? As always, coworkers are usually the first to know when an employee is committing fraud. Make it easy for workers to communicate their concerns with you by setting “office hours” for private phone conversations. And if you don’t already have one, establish a confidential fraud hotline that employees — as well as vendors, customers and other stakeholders — can access from anywhere.

If you’ve had to adjust antifraud processes and procedures, look for reasonable alternatives. For instance, instead of having an employee perform an in-person inventory count, you might hire a fraud expert to do it — as well as look for evidence of fraud while your office is empty.

To make sure your company focuses its limited resources on areas that present the most risk, consider conducting a risk assessment. Add to your list functions that have been affected by remote working arrangements, layoffs or other personnel issues. To keep up with schemes that are flourishing in the pandemic environment, monitor media and government reports of business fraud. Websites of the Federal Trade Commission (ftc.gov), Justice Department (justice.gov) and FBI (fbi.gov) provide a wealth of information about immediate threats.

Communication Is Key

As remote work creates new business risks, make preventing occupational fraud a priority. Reaffirm your company’s commitment to combating fraud in written and spoken communications. For example, consider holding online town hall meetings to discuss new risks, solicit ideas and to model the ethical behavior you want workers to adopt. And if you’ve discovered a fraud scheme and have terminated an employee, be sure to let workers know. Fear of being caught and punished is one of the most effective preventive measures.

Don’t hesitate to reach out to us if you suspect fraud in your organization. We can help investigate. We can also help strengthen your business’s internal controls to better meet today’s challenges.


PKS & Company, P. A. is a full service accounting firm with offices in Salisbury, Ocean City and Lewes that provides traditional accounting services as well as specialized services in the areas of retirement plan audits and administration, medical practice consulting, estate and trust services, fraud and forensic services and payroll services and offers financial planning and investments through PKS Investment Advisors, LLC.

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