Organizations that have received stimulus funding may be at significant risk for fraud, waste and abuse related to that funding. Deloitte’s Don Fancher offers guidance on how to combat that activity.
As most compliance, finance and risk professionals know, economic volatility and major disruption can create a “perfect storm” for bad actors looking for opportunities to take advantage of others. As U.S. economic stimulus funding creates an influx of money globally, bad actors have already begun to pounce and will likely continue to do so. Further, as closer attention is paid to organization financials in advance of stimulus funding awards or as the result of the current economic downturn, existing fraudulent activity is likely to be exposed.
With new and different money flowing in and out of an organization, preparing for an uptick in fraud schemes may be wise.
In fact, 51.3 percent of over 1,200 C-suite and other executives participating in a recent online poll said they expect fraud, waste and abuse schemes to increase in the next 12 months. When it comes to economic stimulus awards, the financial schemes those polled executives expect to see include improper payments (39.5 percent), financial reporting and disclosure fraud (15.2 percent), embezzlement (14.9 percent) and corruption and kickbacks (10.8 percent).
Most U.S. stimulus funding, like the CARES Act for example, comes with new regulatory compliance rules and regulators to enforce them. The government oversight and regulatory enforcement measures put into place around new U.S. stimulus funding closely mirrors that of the 2008-signed Troubled Asset Relief Program (TARP), meaning vigorous enforcement by multiple government entities is expected — and it’s expected to last many years.
But what can organizations do to reduce the risk they fall victim to such schemes? Being proactive is key. A lack of focus on prevention can lead to challenges during remediation following the identification of financial crime—and those challenges may be greater when stimulus funding is involved. Organizations receiving stimulus funding must maintain continued compliance and requirements set forth, or face significant consequences from regulators.
To this end, organizations should strongly consider the following actions when trying to curb fraud, waste and abuse schemes:
1. Implement Fraud Risk Assessment and Monitoring Programs
It is better to be proactive rather than reactive when monitoring for financial crimes. In today’s environment, as employees, vendors, supply chains and more work remotely, technologies such as data analytics can help monitor for these risks. While fraud risk assessment and monitoring programs typically require investment, they can often offer returns in the form of a reduction in inappropriate spend and corruption risk, as well as improved prevention and detection of regulatory violations.
2. Enhance Third-Party Due Diligence and Monitoring
Actively monitoring vendors can play a big role in fraud risk prevention anytime, not only during disruption. Conducting background checks, using risk-sensing and employing social media analytics for both new and existing vendors can be helpful even in the best of times. Of course, even after a disruption or crisis subsides, third-party due diligence and monitoring should continue. By comparing behavior patterns before, during and after something like the global COVID-19 pandemic, organizations can help identify new (and ongoing) schemes that may have otherwise gone undetected.
3. Offer Strong Oversight and Support for Current Employees
About 28 percent of polled executives mentioned earlier said they believe current employees pose the largest risk in terms of fraud, waste and abuse schemes perpetrated against organizations awarded economic stimulus funding. To help combat the possibility of employee financial crime, leadership would be well advised to begin or repeat employee training around fraud management in general – but also around U.S. stimulus funding fraud. Beyond training, playbooks with clearly defined processes and controls for stimulus funding, as well as all fraud, waste and abuse prevention and detection, can be a great employee reference tool. And, of course, tone at the top is invaluable in relaying to employees that leadership attention is being paid to proper use of company funding — whether it is government-provided or not.
4. Combat Unknown Bad Actors (Or Those with No Vendor or Employee Ties)
There are bad actors within many organizations, but there are also bad actors who are complete strangers to those organizations. In the aforementioned executive poll, nearly one-quarter of respondents expected individuals with no employee or vendor ties to perpetrate fraud, waste and abuse schemes against organizations awarded stimulus funding. These unknown parties can be detected and sometimes deterred when strong monitoring programs are in place. Again, specifically targeted analytics can help identify anomalous behaviors to help improve future monitoring efforts.
Though the “perfect storm” for financial crime is upon us, organizations can weather fraud, waste and abuse schemes in the wake of economic volatility and major disruption by taking proactive steps today to reduce later possible challenges.
