On Thursday, March 11th, President Biden signed the newest in a series of approximately $5 trillion in COVID-19 stimulus packages into law, authorizing an additional $1.9 trillion in aid to boost the U.S. economy. The amount of funds that have been given as stimulus during this time is unprecedented and leaves businesses more vulnerable than ever to fraudulent activity.
Unfortunately, experience in prior crises shows that well-intentioned efforts to quickly provide aid in the form of large sums of funds to people in need can leave the door open to fraud. The Small Business Administration – Office of the Inspector General (SBA OIG) Report on January 14, 2021 found that the SBA’s efforts to hurry capital to businesses occurred at the expense of controls that could have reduced the nearly $4.6 billion in purported fraudulent PPP loans doled out by the SBA. Even in “normal” times, organizations worldwide lose an estimated five percent of revenue to fraud each year, according to the Association of Certified Financial Examiners (ACFE).
An Action Plan to Prevent Fraud
There are a number of actions business owners and managers should consider taking to reduce vulnerability. Being informed and aware is the first line of defense. Statistics show that the typical internal fraud goes undetected for roughly 14 months, with U.S. companies experiencing a median loss of $120,000. Most corporate fraud is committed by someone in a position of trust, with 54 percent of the perpetrators at the manager, owner or executive level. Armed with this knowledge, companies should consider taking the following steps:
- Set the right “tone at the top”
- Maintain strong internal controls
- Segregate duties
- Test your systems to ensure they are effective
- Establish mechanisms for reporting fraud, waste and abuse
- Provide help for employees who may be under financial pressure
- Take a firm stand against fraud
No organization is immune to the risk of fraud, waste and abuse. However, the unprecedented sums now being pumped into the U.S. economy and individual businesses may increase the temptation for some perpetrators. As businesses struggle to contain the economic impact of the pandemic and win back the trust of customers, they can ill afford financial losses or the reputational risk of an investigation.
By taking extra measures to prevent and detect potential stimulus-related fraud, businesses can mitigate these risks, and ensure that vital financial resources are used for their intended purposes. If you have any questions about protecting your organization from fraud, please contact your Rudler, PSC advisor at 859-331-1717.
RUDLER, PSC CPAs and Business Advisors
This e-Tip is presented by Alex Weidner, CPA, CFE.
If you would like to discuss your particular situation, contact Alex at 859-331-1717.
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