The old expression “In bad times, people do bad things” seems to be repeated constantly nowadays. During difficult economic times, the incentive to commit fraud increases while the focus on fraud detection, prevention and investigations typically diminishes. And while the post-recession landscape suggests things are looking up, no private company is immune: previous cost-cutting and downsizing efforts are leading to weakened or non-existent controls and ultimately financial fraud from both within and outside the company.
According to Sarah MacGregor, Partner in PwC’s Forensic Services group, “In a global economic downturn, need comes to the forefront and becomes intermingled with greed and opportunity, creating the perfect storm for fraudulent activity.”
During good times and bad, the most common types of fraud are expenditure leakage, revenue leakage, liability fraud, fraudulent financial reporting and misappropriation of assets (i.e. taking assets of the company for personal benefit).
That’s why it’s important that private companies increase their vigil over economic crime. Many fail to task fraud as a priority and develop robust anti-fraud regimes, especially during difficult economic times, leaving the company more vulnerable to financial and reputational risk. In fact, PwC’s 2014 Global Economic Crime Survey shows that 36% of Canadian companies surveyed reported being victims of economic crime. Among them, 44% estimated their direct fraud-related losses to be greater than US$100,000. “For many private companies, fraud equals big money lost,” says MacGregor. “But it goes beyond dollars lost. Fraud can also negatively impact employee morale, business relations, brand, and company reputation. Companies also risk losing their customer base—not to mention the time and expense of undergoing an investigation.”
Reducing your exposure
So what can private companies do to reduce their risk?
Sweeping reforms around fraud management are not the only way to effectively combat fraud. There are many simple and cost-effective strategies that companies can take in the short-term. MacGregor offers the following suggestions:
Private companies should also think long-term to ensure their anti-fraud regimes are as robust as possible. “There are many options available to mitigate risk. Every company should explore and implement the ones best suited to their business”. MacGregor suggests considering the following:
“When anti-fraud measures are put in place, and communicated throughout the company, people will stop committing fraud if they think there’s a crackdown,” says MacGregor. “But it isn’t just enough to develop a strategy, companies need to stay on top of it and monitor risk. You should be proactive to avoid the consequences of any scandal and be sure that you can act expeditiously and efficiently if the worst happens.”
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