Integrity Matters: Fraud Trends for 2022 (Podcast) – Criminal Law

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This is part 1 of a two-part special series starring Tom Fox and the Integrity Matterspodcast on fraud issues and upcoming trends through 2022.

What were the top fraud trends that were of concern to compliance officers and fraud examiners in 2021, and how might they influence fraud investigation, prevention and enforcement through 2022?

Top Fraud Trends in 2021

Fraud in 2021 tended to center around issues related to COVID-19, such as personal protective equipment (PPE) and funds distributed by governments to support national economies, such as the Paycheck Protection Program (PPP) of United States. Supply chain issues have also been a contributing factor, with investigations related to COVID supply and healthcare supply specifically in relation to the pandemic highlighting the role supply chains have played in fraud.

Going forward, there will likely be more fraud investigations as more and more allegations are made regarding fraud in both government procurement and COVID procurement. Of course, the government is interested in these categories because fraudsters are trying to defraud the government with funds.

2021 has also seen many issues related to fraud and data security, especially in the heyday of working from home. That may well change in 2022, but with the rise of the Omicron variant, many companies are abandoning plans to return to the office for now.
With many employees working from home, companies have seen more incidences of fraud within the organization caused by employees circumventing controls, sometimes maliciously, and sometimes simply to avoid inconvenience. This obviously puts organizations at risk and, from a cultural point of view, can be very detrimental.

Another risk factor that fraud experts are tracking in 2022 are two related phenomena that began in 2021: labor mobility coupled with the Great Resignation. This has led people to move much more in the labor market. With people changing jobs and working remotely, it’s harder for employees to connect and for companies to create a cohesive culture. This lack of connection can lead to rationalization (one of the components of the “Fraud Triangle“factors leading to professional fraud), when an employee comes to believe that the company is indebted to him. If a certain level of loyalty is lacking, for whatever reason, there is a general risk that people certain fraudulent actions are justified.

Proactive fraud prevention in 2022

What can compliance officers or fraud examiners do in the face of such multi-vector crises, where multiple crises come from many different directions, forcing a response to multiple threat vectors at once? Consider taking the following steps:

Clarify and enforce policies and procedures. Organizations need to ensure that their protocols, data security, and policies and procedures are clear and manageable, and that employees understand them. Frequently monitor compliance with policies and procedures to ensure that employees actually follow them, so that what is written on paper also matches what happens in practice. Finally, document, document, document.

Make sure dashboard data is used, not just collected. Many companies are working on building dashboards of different fraud indicators. But these dashboards are only a starting point: the data must then be used to make decisions that prevent fraud.

Refresh and update training. Companies that have not renewed their training since the start of the pandemic in March 2020 should do so. Experts agree that more frequent and shorter messages are better. There is room for longer annual focused training, but for changes and updates to regulations, policies and controls, “espresso shots” of training can be very effective.

Investigate control overrides. Businesses need to determine if different types of fraud are occurring within the organization or if the situation is simply that controls are being circumvented. If there is a bypass or control override, it must be closed or the override must be approved by senior management with appropriate business justification. Of course, control issues must be considered when thinking about different work practices and different work environments, whether your employees are working from home, have returned to the office, need to work at sites outside of the physical office, or a combination thereof.

Another thing companies need to be prepared for in 2022 is an increase in whistleblower actions, especially with the recent implementation of the EU Whistleblower Directive, which came into force in December 2021. In the latest editions of the ACFE report to the Nations, published every two years, a recurring theme is that fraud is almost always detected internally and reported internally or detected by internal audit, internal controls or some other mechanism. With the EU’s whistleblower directive and government funds pouring into economies to rebuild infrastructure and other projects, experts expect to see an increase in the number of whistleblowers reporting fraud. This includes internal reporting and reporting to government when a potential bounty is at stake, with the media becoming a third line of whistleblower, as we saw in 2021 with Facebook whistleblower Francis Haugen.

All of these factors lead experts to believe that the risk of fraud and fraud reporting will increase in 2022. Companies need to train their frontline employees to prevent fraud before it happens. Controls need to be evaluated in light of changing workplaces. And with the government keenly interested in both fraud prevention and fraud detection and prosecution, 2022 could well be a bigger year than 2021.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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