By Andrey Koptelov, Innovation Analyst at Itransition

 

In general, the COVID-19 pandemic has shown that our society has exceptional human beings and companies that are willing to sacrifice many of their resources for the public good. However, on the flip side, some individuals and organizations are using the new conditions imposed by the pandemic to their advantage. Historically, global disasters, which can take many shapes and forms, have always caused economic destabilization and distress. This, in turn, inevitably causes an increase in the number of fraudulent activities.

Unsurprisingly, people have become much more reliant on media streaming services, digital commerce, and electronic payments. As the pandemic has effectively forced digitization on many companies, some of them have also failed to provide adequate cybersecurity protection. And fraudsters are never hesitant to capitalize on the new opportunities. Let’s see how financial software development and other methods can help combat them.

Most Common Pandemic-Induced Fraud Types

Identity fraud 

Identity fraud is one of the most known fraud schemes, yet people still get caught off guard.

Most commonly, the wrongdoers directly communicate with the victims via email or phone to obtain financial data, or simply ask them to send funds. For example, fraudsters can disguise themselves as the World Health Organization (WHO) or the American CDC representatives, and ask for donations. They also create websites that sell fake virus-protecting aids and ask people to click on links that contain malware. With the right mix of kindheartedness and inattentiveness, victims often fail to double-check where exactly they are sending money. With the stress instilled by the pandemic, people become much more vulnerable to such scams.

Financial statement fraud 

With the economic recession caused by the pandemic, companies often struggle to meet their earning targets. To make up for the dramatic decrease in consumer spending, some organizations may resort to intentionally falsifying their financial statements to appear capable in the eye of investors. Similarly, some businesses may misrepresent the number of assets or income they have to qualify for government lending programs like the Paycheck Protection Program.

Internal fraud

With increasing personal financial pressure, employees can rationalize stealing from the company and commit fraud. According to the Association of Certified Fraud Examiners (ACFE), 42% of occupational fraudsters are living beyond their means. In times of the pandemic, the number of employees who are forced to spend more than they earn has been increasing.

Unfortunately, companies further facilitate internal fraud by intentionally weakening their anti-fraud programs. Paradoxically, the management often decides to cut costs on compliance and anti-fraud teams because of the pandemic, which makes it easier for distressed employees to steal from the company.

Account takeover

According to Kaspersky, the share of account takeover (ATO) incidents increased from 34% in 2019 to 54% in 2020. Kaspersky links this surge in fraud attempts to the pandemic. The logic here is pretty straightforward: as companies transitioned from point-of-sale shopping to digital channels, they have become more exposed to fraudulent attacks.

Interestingly enough, the underground bazaars of compromised data have also been affected by the pandemic. As crooks are afraid to get caught red-handed in nearly empty brick-and-mortar stores, prices for stolen on-card data have been steadily going down, while online card data is now selling for more. This means that criminals who are specialized in point-of-sale fraud are now transitioning to the closest fraud type, which is ATO.

What to do about it?

– In general, companies should educate their customers on how to identify fraud by repeatedly sending them relevant information. This can have a dramatic effect as many fraud attempts can be prevented by simply recognizing the common red flags in time. Some banks achieve that by gamifying the customers’ learning experience.

– In times of recession, companies are expectedly looking to decrease their spending. However, anti-fraud teams should never be the target for it. It’s quite the opposite — to address increasing risks of internal fraud, organizations should put more effort into ensuring that their security, audit, and compliance teams can perform at their best.

– Financial institutions should implement dedicated systems that can detect suspicious account openings linked to loan applications such as through Paycheck Protection Programs.

– With ATO scams becoming more prevalent, e-commerce businesses need to deploy way more stringent authentication procedures. This especially concerns merchants, who were forced to shift their sales from physical stores to online channels. Being in a rush, and new to the online business, security often comes as an afterthought. Advanced verification processes involving user behavior analysis and biometrics along with multi-factor authentication should become standard precautions.

– Financial institutions should review their approaches to detecting fraud, as pandemic drives criminals to come up with novel fraudulent schemes. This should mostly come down to reexamination of data analytics strategies and the development of new approaches to proactively alert clients to potential fraud.

By the very nature of their occupation, criminals are opportunistic. As it becomes increasingly complex to navigate the cybercrime issues in the times of the pandemic, financial institutions, corporations, regulators, and policymakers need to work together to combat them. The recent International Fraud Prevention Conference that took place on April 21st, 2021, is definitely a step in the right direction.