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Top 5 fraud risks your business should watch for in 2023

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In 2022, we saw society adjust to the COVID-19 pandemic and gradually return to normalcy. But, unfortunately, a crisis at the scale the world experienced in the last few years provided fraudsters with increasing opportunities. As our economy and society evolve, so will the fraud schemes we expect to see. Indeed, as predictions of an economic downturn continue, it can lead to a perfect storm of the fraud triangle elements: opportunity, motivation, and rationalization. 

This article examines some of the circumstances that allow fraud to occur, the motivation and rationalization for committing it, and how best to position your company to mitigate the top five fraud risks in 2023.

As economic pressures persist, there has been a notable rise in predator frauds throughout 2023, which is expected to continue into 2024. Predator frauds include employment scams and investment frauds, which take advantage of individuals in difficult financial circumstances seeking opportunities to alleviate their financial burdens. Or, it is simply a matter of human nature – greed. 

Investment fraud 

Investment fraud is the most common consumer financially devastating form of deception. According to the Canadian Anti-Fraud Centre (CAFC), investment fraud losses exceeded $309 million in 2023. This represents an 88% increase from 2021. Last year, CPA Canada reported that the majority of investment fraud activities are associated with cryptocurrency investment platforms. Investors are enticed to make small investments, which supposedly quickly earn high returns. Yet, they are discouraged from making withdrawals.  

When they demand the return of their funds, they face the sad reality that the investment platform is fraudulent, and their money is gone.  

To mitigate the risk of falling victim to investment fraud, businesses and individuals can adopt precautionary measures: 

  • Conduct thorough research – Perform online research on the digital asset, the investment company, and the advisor before investing in cryptocurrencies or with foreign trading platforms. Search for credible reviews and investigate complaints.  
  • Confirm whether the investment platform and advisor are appropriately regulated and registered with the relevant regulators. For example, are they listed on the Canadian Securities Administrators’ ‘Are they registered?’ roster? Have they been subject to any disciplinary action? 
  • Maintain realistic expectations – Understand that no investment can be guaranteed to provide significant profits. If it’s too good to be true, it probably is.  

Employment fraud 

According to CNBC, fake employment schemes rank among the top 5 financial frauds to be wary of in 2024, particularly given the rise in company layoffs. These schemes typically involve sophisticated tactics designed to deceive victims, enticing them with seemingly legitimate job opportunities. Fake employers often initiate contact through interview requests, followed by demands for personal information (supposedly for background checks).  
Once armed with personal identity details, predators can take over bank accounts or apply for new credit cards or loans. Some job frauds promise easy access to supposed high-income opportunities but require an upfront ‘application fee.’   

To combat employment scams, consider the following steps: 

  • Conduct online background research, looking for reviews of the purported employer from credible sources.  Search for the company or individual offering the job alongside keywords such as ‘scam,’ ‘review,’ or ‘complaint.’ See whether others have reported instances of being defrauded by the same entity. 
  • Avoid clicking hyperlinks embedded in unsolicited texts, emails, or social media messages, regardless of any apparent association with a known company. 
  • Exercise caution against any requests for upfront payment to secure a job. Be wary of schemes requiring payment or advances (particularly cryptocurrency transfers) as prerequisites for employment.

Cyber fraud is one of the top fraud risks to watch for in 2024. Cyber crime increased in volume during the pandemic and has yet to wane. As a result, small and medium-sized businesses will continue to be more vulnerable to cyber attacks. According to the Insurance Bureau of Canada’s (IBC) 2023 Cyber Security Survey, despite 40% of small business employees indicating an increase in scam attempts in the last 12 months: 

  • 69% of employers do not consider cybersecurity a financial priority 
  • Only 20% have any intention of purchasing cyber insurance within the next year 
  • 17% don’t think they would qualify for cyber insurance  

BDO's 2023 Global Risk Landscape report raised critical concerns for organizational leaders. Cyber fraud and hacking emerge as paramount vulnerabilities, as shared by 24% of surveyed CEOs and perceived as the most significant threats by 46% of businesses. Notably, 13% of respondents identify the convergence of cyber attacks and fraud as one of the top combinations of risk multipliers.  

Current business trends also inadvertently increase fraud and cyber risk by providing fraudsters with new opportunities. These trends include: 

  • The digitization of business processes 
  • Migrating data to the cloud 
  • Increasing use of mobile devices 
  • Remote working 

One of the best ways to mitigate cyber fraud is to secure your IT infrastructure. Whether you outsource your computer networks or keep them in-house, knowing what is happening on your network and recognizing suspicious activity when it occurs will boost your cyber resilience. The more knowledge you have about the risks involved in your business, the better security measures you can take. An excellent place to start is with a cyber risk assessment of your organization, and BDO's Cybersecurity and Digital Forensics team can help you in this regard.

Over recent years, we have seen examples of people's resilience in the face of hardships. But what happens when too many obstacles are thrown our way? Sometimes, people under pressure will do things that ought not to be done. With the recent rising prices of just about everything, and the looming threat of economic recession, people may be more likely to find other (less ethical) means of “earning” income. 

We are now accustomed to making our data tables from our dining tables and preparing bank reconciliations from our bedrooms, which is why, it's crucial to be mindful of changes to how we work to combat employee fraud

To mitigate employee fraud risks, we should modify our internal controls and implement different types of management oversight. With remote working, it may be easier to abuse the present controls, falsify or bypass approvals, or forgo asking questions when things aren't adding up. It is essential to remain vigilant and ensure the company's integrity isn't compromised. As our working arrangements evolve, we must remember those at their desks and dens. 

Supply chain disruptions have become commonplace for everything from groceries to automobiles to building materials. As a result of these issues, it has become more difficult and costly to obtain certain products. Supply chain problems have affected every individual and industry in some way. 

In these difficult and expensive times, people may be more likely to get creative with sourcing products, parts, and materials. Supply chain fraud includes bribery, misrepresentation of goods, financial fraud, violation of sanctions and bid rigging. 

Businesses can do the following to mitigate these fraud risks:  

  • Conduct risk-based due diligence to ensure that distributors, business partners, and agents are held to a high standard of conduct. 
  • Examine the business hierarchy and procedures to gain approvals. 
  • Develop and enhance fraud and corruption controls through risk assessments, including accounting controls, training, policies, and procedures. 
  • Test transactions and controls using independent and objective sources familiar with the business, industry, culture, practice, and regulations. 
  • Conduct, re-evaluate, and refresh fraud and corruption risk assessments regularly to ensure the systems are continuously updated and reinforced. 

To keep fraud at bay, organizations must continuously examine and enhance risk management systems to ensure they are well-positioned to prevent, detect, and, if needed, fight fraud. 

Maintaining the order of business and its supply chain is the best way to ensure that they continue to thrive, and the company continues to succeed in serving others. 

Due to the financial aftermath of the pandemic along with the threat of a possible recession, insurance fraud will be on high alert in 2024. Some companies or individuals may resort to providing inaccurate or misleading information to obtain insurance coverage. According to a Friss Insurance Fraud Report, some of the top schemes perpetrated have included false injuries, nondisclosure of relevant information, staged accidents, and submitting multiple claims for the same incident. 

Fraudulent insurance claims impact honest customers and the public. As a result, businesses can suffer indirect economic losses, valuable public service resources are used, and insurance companies will bear the financial brunt. In addition, fraud of this kind tends to have a ripple effect and quickly leads to higher premiums.

How BDO can help

At BDO, we're committed to helping business owners understand where fraudulent activity may occur in their organization, quantify any potential losses a business may have suffered, and discuss the mitigating measures they can implement to combat it. 

For more information about fraud protection and detection for your organization, contact:

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