Top 5 Fraud Risks your Business should watch for in 2023

Cyber fraud is the top fraud risk to watch for in 2023. Cybercrime 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 BDO’s 2022 Global Fraud Survey conducted across 131 countries, cybersecurity fraud was the most reported fraud at 46%, followed by asset misappropriation at 28%.

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 how they source 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 they continue to thrive, and the company continues to succeed in serving others.

Misappropriation of assets is when someone within a company uses their position to steal from an organization. Common examples of asset misappropriation include: 

• Theft of cash, services, inventory, time, or intellectual property
• Falsified financial reports and statements
• Purchase order schemes, in which payments are made to false vendors
• Credit card abuse, in which a company card is used for personal expenses
• Cheque forgery and tampering

According to the Society of Corporate Compliance and Ethics, in 2022, 86% of fraud cases involved some form of asset misappropriation. This is a 3% increase from 2016, and we expect this trend to stay generally consistent. Take the following steps to combat asset misappropriation:

• Conduct thorough background checks on candidates before hiring, vendors and other potential partners   
• Rotate duties of employees in accounts
• Conduct random audits of company accounts 
• Do not give one employee sole access to multiple or all systems 
• Implement checks and balances for financial tasks
• Conduct random compliance reviews of procurement policies
• Implement an ethics hotline to encourage employees to report wrongdoing

Due to the financial aftermath of the pandemic along with the threat of a possible recession, insurance fraud will be on high alert in 2023. Some companies or individuals may resort to providing inaccurate or misleading information to obtain insurance cover. According to the 2022 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.