In our latest podcast, our forensic and insolvency experts discuss how increasing debt and excessive borrowing has led to a perfect storm for fraud.
Economic recession usually sees an increase in fraud cases because, as available funds dry up, previously undiscovered fraud becomes more obvious as investors try to cash in, or businesses limit purchases and fake supplies are found. Additionally, as businesses struggle through recession, many are tempted to turn to criminal means to keep their company afloat. Employees may also look to fraud as a means to support themselves.
In this Covid linked recession there is the added significant threat across the globe that arises from trillions of dollars pumped into economies of most major industrialised nations. Fraudsters prey on opportunity and the ready availability of cash to steal. The availability of government grants and backing for bank loans has seen an exponential rise in fraud. In the UK alone it is estimated that over £5 billion may be defrauded.
In the UK, fraudsters have defrauded furlough schemes to claim for non-existent employees in non-trading businesses. They have also exploited weaknesses in the Bounce Back Loan Schemes to apply for loans for companies that are dormant, newly incorporated or, most worryingly, they have stolen the identity of real law abiding companies to apply for loans in their names. Normal bank due diligence on loan applications has been curtailed or waived to facilitate easy access to money, with the result that banks have been defrauded, but Government guarantees will mean the Government will need to cover the losses. Given the delayed repayment schedules on such loans, it is likely that the extent of fraud will not become apparent until the first repayment is due.
In addition to this, the mechanisms available to run fraud schemes have been simplified by reliance on internet communications and systems. Whereas once fraudsters would need to send bogus investments by post, or advertise fake goods in newspapers, the internet and email have revolutionised the ease with which they can achieve mass saturation of the business and consumer markets. Many current schemes apply to Covid related medical equipment and product scams but Interpol has also issued a worldwide warning against a new dating app which is actually a front for an old style investment scam.
With all this fraudulent activity there has never been a more crucial time for businesses to be vigilant and mitigate their fraud risk. Carrying out appropriate due diligence on new suppliers and customers to verify identity is an obvious safeguard. However, carrying out routine checks on existing suppliers and customers is also necessary as well, as is always checking the correct details for bank payments before money is paid away to the wrong account.
Heightened awareness of the potential for fraudsters to be targeting your business is vital to avoid incurring irrecoverable losses. Sophisticated and organised fraud gangs will invest some of their ill-gotten gains in improving their own systems and maximising their ability to spread their reach.
For further information on these topics, please listen to our latest podcast via the link above or click here to watch our recent webinar. Alternatively, to discuss any queries you may have, please contact the podcast contributors: