Has COVID-19 Opened the Door to Business Fraud? 

Bauknight, Pietras & Stormer CPA Jessica Kaczor Says “Yes!”

Editor’s Note: I recently sat down, virtually of course, with Jessica Kaczor, a business fraud super sleuth and Certified Fraud Examiner, who is also a Senior Audit CPA with Bauknight, Pietras & Stormer, PA, in Columbia, to discuss the significant spike in fraud as a result of the COVID-19 pandemic. Jessica is a featured presenter at a national conference August 3 and 4, virtual of course, for TFACC, the premiere national conference for tax, finance, and accounting professionals who work with rural broadband and electric cooperatives and rural companies. – Alan Cooper, Publisher, MidlandsBiz, UpstateBizSC and LowcountryBizSC.

Who’s On The Move:
One would think that during the COVID-19 pandemic, with people working remotely, home schooling kids and trying to stay healthy, there would be little time for crime. It sounds like the exact opposite is true.

Jessica Kaczor:
Absolutely! COVID-19 has thrown open the door to crime and fraudsters have been taking advantage of the pandemic’s uncertainty and causing a lot of mayhem. A recent survey by the Association of Certified Fraud Examiners (ACFE) found that 68 percent of respondents had experienced an increase in fraud levels. Small businesses have been particularly hard hit. They typically lose about five percent of revenue to fraud each year, which is two to four times higher than that of large organizations.

Who’s On The Move:
What’s causing the incidence of fraud to spike?

Jessica Kaczor:
It’s a number of things. Among the biggest is sending employees home to work remotely. Personal computers are not secured, there’s no boss looking over the employee’s shoulder and checking their work, and there’s also a sense of urgency to do what it takes to get things done rather than following established security protocols. Too, businesses are increasingly reliant on technologies like Zoom video conferencing, and as we saw, security was an immediate issue. Another big one is that organizations’ anti-fraud strategies were designed for an office-based workforce. Internal controls for offices that are usually very effective in deterring fraud are circumvented when people are working remotely.

Who’s On The Move:
What would make honest people “go rogue” and commit fraud against their employer?

Jessica Kaczor:
Much of the motivation behind fraud is psychological. In most fraudster’s minds, they aren’t going rogue. They believe what they’re doing isn’t hurting anyone and that they may deserve whatever they’re taking.  When fraud is actually prosecuted, the distinct factors to prove are (1) intent, this makes the difference between error and fraud, and (2) who was hurt.  With kids at home, schedules drastically changed, money may be tight, bosses expect the same outcome for job responsibilities, there are way more factors that influence a person’s decision to steal. Some of the red flags we previously watch for in identifying potential fraudsters like being the last one to leave the office or first one in, have a closed-off workspace and never taking vacation don’t apply with people working remotely. The opportunity to cheat or steal is easier to rationalize when no boss or peers are around to influence your behavior.

Who’s On The Move:
What are most common types of employee fraud?

Jessica Kaczor:
For small to mid-sized companies, the most common types of fraud are associated with billing, payroll, payment tampering, altering financial statements, and embezzlement. Without supervision, opportunities to “game the system” have exploded.

Who’s On The Move:
What other types of fraud are on the rise that businesses need to be aware of?

Jessica Kaczor:
According to the ACFE, the biggest threat is cyber fraud such as business emails being compromised, hacking, malware, and ransomware. This is because people are working on unsecured laptops, which makes it easier for cyber criminals to cause problems. We’re also seeing more fraud from vendors and other sellers such as price gouging, overbilling and product misrepresentation. Payment fraud like business credit cards being improperly charged or fraudulent mobile charges—there are so many opportunities, companies have to be incredibly vigilant.

Who’s On The Move:
That sounds like a huge challenge for management.

Jessica Kaczor:
Absolutely! And it’s particularly hard if your organization is dependent on paper files or you don’t have digital systems in place that enable remote access. Also, because of the work-from-home lockdown, companies may have postponed risk assessments or meetings with their fraud prevention advisors. Budget cuts have also impacted fraud prevention efforts. COVID-19 has really revealed the chinks in companies’ armor!

Who’s On The Move:
What advice to you have for businesses and other organizations that have experienced an uptick in fraud, are afraid they may be missing things or just want to stop problems before they start?

Jessica Kaczor:
First, I’d like to tell them just because you think you have the best, most loyal team around, the stress of the pandemic is weighing on people and those who never, ever would have done anything wrong may do the unthinkable. As simple as it sounds, notifying your employees and even your vendors and other suppliers that fraud prevention efforts are now heightened as a result of COVID-19 is an effective deterrent. Also, business owners and managers should make it a practice to check in with their people and ask how things are going. One thing I learned growing up and something BPS does a great job promoting internally with our team is if you don’t ask, you will never know. Knowing how people are doing and how they might rationalize a tough situation is key. Now is a good time for companies to re-evaluate their risk and adjust their fraud prevention strategies accordingly.

Who’s On The Move:
Can Bauknight, Pietras & Stormer help with that?

Jessica Kaczor:
As trusted advisors to companies and organizations across South Carolina and on a national basis, BPS can definitely help with risk analysis and fraud prevention strategies. Connect with us here.