By Arun Chauhan founder and Director, Tenet Compliance and Litigation [1]

The pandemic has brought a range of business topics into focus and for many, none more so than liquidity.

The pressure on a range of sectors in the pandemic has led to impact amongst supply networks across the globe. 

Those businesses hoping to survive and others that push on for recovery know that now, perhaps more than ever, cash is king, which in real terms means liquidity is king.

In 2020, it was said that fraud cost the global economy $42bn. It is said cybercrime will reach $6trn of loss. PwC reported that 47% of companies experienced fraud in the 24 months leading into mid-2020.

Fraud risk is real. Fraud represents 40% of all crime in the UK. It is now more likely all businesses will suffer some form of fraud which will cause unexpected disruption and loss. The risks for businesses needing support are threefold. 

Firstly, the primary target by criminals during the pandemic has been consumers. People were driven online to make purchases, creating the perfect hunting ground for criminals. Many saw their financial situations change whether it be loss of interest on savings, redundancy or being furloughed. We saw a rise in scams targeting the very people working in businesses. If they were a victim, keeping their job to make ends meet was more important than before. This increases risk of fraud to businesses in terms of pressure on employees to ensure they have sufficient liquidity in their personal lives. In other words, they are under pressure, a key factor behind why people commit fraud.

Secondly, control frameworks, especially around procurement and finance have been weakened due to homeworking. The result, external attacks have a better chance of getting through, i.e. cybercrime. Human error still remains a weak link in IT security as being isolated at home means less chance to turn to a colleague and ask for a second opinion, a lapse of judgment is more than possible.  

The other issue of control frameworks being weakened is that an employee who is under pressure in their home life will have been able to find more opportunities to by-pass controls to commit fraud. Internal fraud is often thought to be committed by people who were always out to commit fraud, but that is not the case. Employees become morally fatigued, their moral compass can lose its way, a temporary plaster over their personal financial issues (e.g., at home or a gambling addiction) through stealing from an employer or sharing confidential information in exchange for a benefit can make the difference for them and their family.

Thirdly, the owners or management of a business have pressure from shareholders, or from themselves to make sure their business survives. Be it seeking to retain the standard of lifestyle to just trying to keep their business alive, are all examples of pressure that have caused businesses to take on more risk during the pandemic, for example diversifying the type of work they do, the products they supply or say they can supply, all of which may well come back to bite if they have oversold their capabilities or products which can also be seen as fraudulent behaviour.

Business of all sizes and operating across all sectors now must be alert to the risk of fraud. It is especially important to see that fraud is discussed more openly and frequently at all levels of a business as it serves to educate people to help protect from fraud but also serves as a useful deterrent.

Critically, if fraud is spotted earlier, it is far more likely that the damage can be limited for the business, its employees and its creditors.

For more information visit Tenet Compliance and Litigation [2]