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Beware of COVID-19 Scams: Fraud Alert, How Does Fraud Happen?

Accountability Leadership

Beware of COVID-19 Scams: Fraud Alert, How Does Fraud Happen?

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Beware of COVID-19 Scams: Fraud Alert, How Does Fraud Happen?

(Newscko) ─ By Dr. Joy Chacko: The Office of Inspector General of The U.S. Department of Health and Human Services Office warns the public about fraud schemes associated with the novel coronavirus (COVID-19). In a YouTube video message titled “5 Things About COVID-19 Health Care Fraud,” The Office of Inspector General talks about five things to know about COVID-19 Fraud, which comprises:

  1. Scammers are active right now.
  2. Scammers can cause harm.
  3. Covid-19 Fraud is rapidly evolving
  4. Talk to your doctor to get COVID-19 testing or treatment
  5. If you suspect Fraud, take action.

Additionally, The Federal Trade Commission (FTC) has issued coronavirus advice for consumers, in which The FTC urges to take necessary measures to avoid coronavirus scams. 

Besides, more and more businesses are doing their business online and their employees are working from home as The COVID-19 outbreak continues. The new shift in how the businesses operate and the rapid increase of commerce over the internet have a devastating impact globally. Therefore, the explosive growth of e-commerce is attracting fraud than ever before.

In this situation, let us examine what is fraud and how does it happen.

Fraud Defined

Fraud means dishonesty, irregularities, illegal actions, theft, suppression, falsification, lack of the required exchange of communication, or any intentional or purposeful act. In other words, Fraud is “an intentional act within the course of one’s employment that is illegal or highly unethical, the victim of which may be other individuals or the organization itself.” [1] Indeed, fraud types involve internal fraud and external fraud. Undoubtedly, organization’s work culture influences fraud.

The Fraud Triangle

Researchers have developed the reasons why someone commits fraud which is generally referred to as the fraud triangle. This model explains the fundamental factors-incentive (or pressure), perceived opportunity, and the attitude (rationalization) that give someone the chance to perform fraud.

Anti-Fraud Measures

The Association of Certified Fraud Examiners (ACFE) advises businesses of any size to consider five measures to combat fraud:

  1. Be proactive. 
  2. Establish hiring procedures.
  3. Train employees in fraud prevention. 
  4. Conduct regular audits.
  5. Call in an expert. 

Indeed, accounting literature related to fraud suggests for anti-fraud measures auditors to focus on leadership, globalization, and corporate crime areas. [2] Notably, for the effectiveness of internal controls, while analyzing the “opportunity”, auditors focus on control environment, including whistleblowing, foreign environments and anti-fraud efforts. [2]  

According to Bruce Dorris, J.D, CFE, CPA, President and CEO of the ACFE, coronavirus pandemic is a perfect storm for Fraud. Applying the theoretical explanation of the opportunity elements of fraud occurrence to the COVID-19 pandemic situation, fraud could occur dangerously in many ways because the unprecedented COVID-19 pandemic circumstances have created critical situations for occurring fraud.

Why Fraud Audit Usually Is a Consulting Service

If you think the auditor is responsible for detecting any kind of fraud that may have occurred, the answer is absolutely not. According to Douglas R. Carmichael, PhD, CPA, CFE, it is true that some auditors maintain that they have no responsibility to detect fraud. Though the auditing standards specify reasonable assurance as a “high level of assurance,” the level of assurance of fraud detection is not absolute. Therefore, to protect your business from fraud, internal auditing or a separate fraud detection consulting service would be necessary.  

Internal Auditing

The Institute of Internal Auditors (IIA) defines internal auditing as “an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations.” [3]. Notably, internal auditing assists businesses achieve their objectives by presenting a systematic approach to evaluate and promote the effectiveness of risk management, control, and governance processes.

However, when it comes to defending fraud, it is not internal audit’s direct responsibility to prevent fraud occurring within the business. Instead, it is management’ responsibility to act as the first line of defense.

Fighting Against Fraud is a Governance Function

Indeed, fighting effectively against fraud is a governance issue. According to Dr. Douglas M. Boyle, DBA, MBA, CPA, CMA, Accounting Department Chair and Professor at the University of Scranton in Pennsylvania, occurrence of fraud presents proof of failures among the primary governance mechanisms. Governance involves accountability and leadership. Dr. Boyle has served the Board of Directors for many public and private companies and has accumulated several years of industry experience in senior positions before entering into academia.

The doctorate (DBA) program in accounting Dr. Boyle created at the University of Scranton includes a Fraud Research Seminar course where doctoral students perform a rigorous research on fraud in accounting. Indeed, accounting students at every level should learn skills to detecting and preventing fraud to fight against fraud and there are opportunities for them to offer those services to businesses.

Unquestionably, fighting fraud implies protecting customers and institutions from the multitude of ways that otherwise can be taken advantage causing unemployment and poverty among other serious consequences to the economy and nation.

Additional Readings:

References:

  1. Murphy, Pamela R., and Clinton Free. 2016. “Broadening the Fraud Triangle: Instrumental Climate and Fraud.” Behavioral Research in Accounting 28, no. 1: 41-56.
  2. Gregory M., Tina D. Carpenter, Naman Desai, Keith L. Jones, and Richard A. Riley Jr. 2013. “A Synthesis of Fraud-Related Research.” Auditing: A Journal of Practice & Theory 32, 287-321. 
  3. Ege, Matthew S. 2015. “Does Internal Audit Function Quality Deter Management Misconduct?” Accounting Review 90, no. 2: 495-527