Will Due Diligence change in the aftermath of COVID-19?

Will Due Diligence change in the aftermath of COVID-19?

Governments across Europe have begun to announce their strategies for ending the general lockdowns enforced across the continent. As the world tentatively rounds this very long corner, with this new phase of mitigating the virus impact, both businesses and communities have begun the search for the new normal. We look at how the danger of fraud has increased, and the growing need for due diligence.


Economic disruption

As the economic toll of the extended lockdown begins to take effect, governments are now announcing that countries around the world are entering recession, with Germany officially announcing that its economy shrank by 2.2%, in its largest quarterly fall since 2009. In response to the changing economic landscape, incidents of fraud are expected to rise.

The UK’s Counter Fraud Function have warned that the threat of fraud is always greater during times of emergency. Traditionally, increased incidents of fraud, such as asset misappropriation, often correspond with a business or individual suffering from a financial loss. The large financial losses suffered as a result of COVID-19 could cause a significant spike in these activities.  Additionally, as these losses take their toll, businesses will increasingly be at risk of wanting to take advantage of an opportunity without the appropriate level of caution.

Law enforcement agencies in the UK have warned that fraudsters are exploiting financial concerns to ask for upfront fees for bogus loans or offering high-return investment scams.

According to the World Economic Forum, the sizable disruption caused by COVID-19 has pushed a large number of organisations and companies to adapt and change their products or services, in order to help meet the demand caused by the virus.  This movement will create opportunities for fraudsters seeking to take advantage against those coming from a different industry, who may not be aware of the organisation or an individual’s background.

Back in March, the US announced it had experienced its first court action against a defendant conducting a predatory fraud scheme attempting to profit from the global pandemic by offering to sell “vaccine kits” from the World Health Organisation.

Unemployment trends

Maybe one of the most concerning trends in this period has been the jump in unemployment rates. Figures around the world are continuing to hit record highs, with the US alone having reached 36 million by the 14th of May 2020.

High levels of unemployment are expected to remain a challenge for some time. As the unemployed rejoin the workforce and anxiety levels remain high, pre-employment screening to avoid future complications should remain a consideration.

In last November’s issue of TenInsight, we discussed the six behavioural red flags of employee related fraud, outlined by the Association of Certified Fraud Examiners, which discussed the correlation of geopolitical uncertainty, employee anxiety and the increased risk of fraudulent behaviour.

Before COVID-19 crisis became apparent, a survey taken in 2019 found that 49% of large businesses and 48% of SMEs encountered a candidate making false claims about completing a degree or inflating their grade. As the unemployed slowly reenter the workforce, a combination of high competition and financial losses could see these numbers spike.

Fraud Prevention

Controlling the risks of encountering fraud during this period will be more important than ever if companies intend on coming out the other side of the COVID-19 crisis unscathed. Fraud prevention through tools such as pre-employment screening and pre-transactional due diligence remain essential to preventing fraud.

We are committed to protecting clients, people, and their livelihoods from harm as the global environment becomes increasingly attractive to those wishing to take advantage.

Daniel Walters | Associate

If your organisation is considering employment screening, due diligence compliance or fraud prevention measures, contact us us via info@tenintel.com and we can help guide you through the process.For more updates, you can follow us on LinkedIn and Twitter @TenIntelligence.

Our Intelligence | Your Assurance