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Stop fraud spreading

Tough times and disruption will be used as an opportunity to undertake fraud and launder the proceeds. Rachael Willcox finds out how to approach this growing problem.

Stop fraud spreading
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  • Rachael Willcox
  • July 31, 2020
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The economy may be stalling as a result of the pandemic but it’s a buoyant time for criminals as they look to exploit the crisis for financial gain. For accountants and their clients, the pandemic serves as a reminder of the need to be ever vigilant in the face of growing fraud risk.

According to the most recent Financial Cost of Fraud report published by accountancy firm Crowe alongside Portsmouth University’s Centre for Counter Fraud Studies, conservative estimates indicate that UK fraud losses alone equate to £130bn each year.

It’s a sad reality that as many businesses are struggling to keep their heads above water, fraud continues to pose a major threat to them as perpetrators become ever more imaginative in their criminal activity and successfully exploit vulnerabilities in systems and processes. At the same time, as the UK economy is poised to enter recession, history has shown us that owners and managers of businesses that are under threat will be tempted into fraud.

Criminal activity related to fraud generates money that needs to be laundered, so where there is fraud there is money laundering. Therefore, having a framework to mitigate the risk of fraud will also reduce the risk of money laundering. Understanding both is crucial in not only running your own practice, but crucially in spotting potential breaches among clients.

The Fraud Advisory Panel’s Covid-19 fraud watch group - a cross-sector and cross-industry coalition of partners including the Cabinet Offi  ce and City of London Police – highlights the constantly evolving nature of threats affecting business. It has flagged up fraudsters using open source data to apply for stimulus funding on behalf of legitimate businesses; synthetic IDs being used in payroll frauds; investment fraud; bounce back loan and grant fraud, as just some of the trends emerging as a result of the health pandemic. 

Meanwhile, an explosion in the number of people working remotely is increasing the likelihood of computer service fraud where criminals try to convince you to provide access to your computer or divulge your logon details and passwords. In the UK, suspected fraud should be reported to Action Fraud UK, which has received more than 2,100 fraud reports related to COVID-19 since February. 

Most frauds occur, not necessarily as a result of the criminal genius of the perpetrators but due to a lack of diligence by business owners. In some ways, the challenge with ‘spotting the signs’ is that the usual risk factors - distressed businesses, time pressures, sparse information, difficulties communicating with clients - are now so commonplace, you may find yourself seeing fraud wherever you look, says John Binns, partner at BCL Solicitors.

“At the risk of sounding glib, the best advice has to be to ’stay alert’ to the possibility of fraud, and spend the extra time and effort that may be needed to rule it out or allay suspicions,” Binns says. “That may seem like an unwelcome burden at the moment, but it’s preferable to being drawn into nefarious conduct and the potential for criminal enquiries.” 

Where tax evasion is involved, businesses need to be especially alert to the risk that their personnel are facilitating it, because of the corporate offences under the Criminal Finances Act. “If you do not yet have procedures to prevent such conduct, it’s high time to create them; if you do, they may need to be reviewed,” Binns urges.

Liz Lasher, vice president of fraud, financial crime and cyber risk portfolio marketing at data analytics company FICO, offers simple advice on not falling foul of fraudsters. It includes always confirming requests through another channel that you know is legitimate, regularly monitoring your bank accounts and doing your research if something doesn’t feel quite right. 

“Set payment thresholds and low balance notifications, so that you are aware of sudden changes or unexpected charges to your accounts. If you are skeptical about a communication you receive, use your favorite search engine to search relevant terms. Use a different password for each account and enable multi-factor authentication where available,” Lasher advises.  

Use a random password generator and a password manager to beef up access to your various accounts and where possible enable multifactor authentication capability so that additional measures are taken. These methods could include things like providing a PIN, a number distributed via text message or a biometric identifier. Lasher also recommends monitoring credit reports for any unusual activity. 

Perhaps ironically, the prospect of recession makes it more rather than less likely for frauds to be uncovered. Due to financial constraints, there is no longer the available cashflow to mask them. If a fraud comes to light, take steps to stop the fraudster in their tracks and find out if any remediation is available, Lasher says.

“People sometimes feel hesitant to report a scam because they feel embarrassed about being taken advantage of, but the sooner the scam is reported, the sooner steps can be taken to reduce the damage and stop it from happening to other people.” 

Rachael Willcox is a freelance journalist

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