Why COVID-19 Has Created a Thriving Environment for Business Fraud

Business fraud

When it comes to running a business, there are many different ways mishaps can happen that can cause operations to come to a screeching halt. One of these ways is through business fraud. While fraud can impact a company at any time, the ongoing COVID-19 pandemic has created a thriving environment for business fraud to occur. Understanding the different factors that can contribute to a potential fraud scheme can help businesses stay protected.

Factors That Contribute to COVID-19 Business Fraud

As the coronavirus pandemic rages on, so does the concern surrounding the potential for fraud to occur. In fact, there have already been various instances of coronavirus-related fraud scams involving fake treatments for COVID-19, as well as fundraising for charities that don’t even exist. While these fraud scams primarily affect individuals, just as many scams have worked to defraud businesses, investors, and many others within a corporate infrastructure. This is because business fraud has quickly become a thriving industry amidst the pandemic, as it creates a rare confluence of factors that produce a fraud-friendly atmosphere.

Fraud is one of the most common ways a business can lose money. Fraud refers to the knowing misrepresentation of the truth or concealment of a material fact in order to induce another to their detriment. Fraud is an intentional act, where the person or persons committing the fraud knows their actions are being made with no supporting factual basis.

Some of the factors that contribute to business fraud amidst COVID-19 include:

More Difficult Times

According to an article by Fortune, fraud experts claim that instances of corporate fraud grow from three different elements: pressure, opportunity, and rationalization. Because a poor performing economy creates pressure, businesses can easily run short on cash or be unable to meet financial expectations. While financial pressures during the pandemic have been heaviest in the energy and oil and gas sector, financial industry, and for industrial businesses, any business can become subject to fraud.

Poor Oversight

Opportunities for business fraud widen when people know that they aren’t being watched. According to the Association of Certified Fraud Examiners (ACFE), some financially stressed businesses have had to cut anti-fraud staff and budgets amid the pandemic. Additionally, with countless numbers of employees now working from home, oversight and security may not be as secure as they were when the workforce was operating in a fully functioning office. In fact, many of ACFE members claim reporting, detecting, and investigating fraud claims has become much more challenging during the pandemic because of this.

While it might be easy to assume that the reason oversight is much more prevalent during COVID-19 is because there is not access to the same technology as there would be in an office – this isn’t the case. The main issue with oversight is that it’s much more difficult for fraud examiners to travel and interview people face-to-face.

Easy Access to Money

When the Paycheck Protection Program (PPP) was announced as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), it was seen as a necessary and effective way for business owners to collect vital funding. While this is true in many cases, the PPP also created a rich environment for fraud. In fact, more than a half-trillion dollars were loaned out to small businesses in the spring and summer months with very little verification of applicant information. This created a means for large chains – like Ruth’s Chris Steakhouse and Shake Shack – to obtain loans through the PPP that most believed should be distributed to affected small businesses.

Protecting Houston Businesses From Fraud

Fraud can happen to a business at any time and unfortunately, the COVID-19 pandemic has only made these instances much more attainable for scammers. When fraud happens to a business, it can have a detrimental effect on its reputation and ability to maintain operations. In order to mitigate your company’s exposure, it’s best to consult with an experienced Houston business fraud attorney. If you suspect your business has been a victim of fraud, the attorneys at Feldman & Feldman are equipped to investigate your claim. Contact us today for more information on how we can best assist your business.