The potential for fraud has increased with the ongoing Covid-19 pandemic, as finance institutions having to work remotely creates the possibility of fraudulent activity.
Stuart Cobbe is the Director of Growth, Europe, at MindBridge, an AI auditing platform. Here, Stuart explains that the role of the accountant has now become essential to businesses and their reputations.
The potential for fraudulent activity to prosper as finance departments conduct business remotely with less supervision in these exceptional Covid-19 times is inevitable. Government loans and financial support have been distributed with limited accountability to businesses that are struggling with the disruption in their industry, resulting in many businesses needing financial assistance.
Although there is evidence of corporations handing back furlough grants as HMRC offers a 90-day amnesty, without rapid data-driven insight and risk stratification, organisations may not be aware of the extent of their exposure. Indeed numerous businesses face the alarming realisation of repaying loans at the same time as paying deferred VAT early next year in an unpredictable trading environment.
The Covid-19 landscape is unstable, and businesses require clarity in all aspects of their business in order to effectively prepare for the future and to understand their financial position. As the economy advances to a new ‘normal’, companies need to concentrate on the next six months. How many ‘zombie’ businesses are running due to deferred VAT payments? How many companies will fail when they cannot repay loans? The accountant has a vital role here in unlocking this transparency to provide data-driven, actionable insights.
There are of course many questions around how government financing has been handled, from grants to loans, furlough payments to VAT deferments. As of the 20th September, the total cost of furlough claims reached astonishingly close to almost £40 billion, despite 30,000 applications being rejected, with many likely to have been attempting to defraud the taxpayer. Economists from Cambridge, Oxford and Zurich universities found that as many as two-thirds of furloughed workers continued to work.
Businesses risk facing a HMRC-imposed tax charge equivalent of up to 100% of the grant to which any recipient was not entitled and was not repaid if they don’t realise the extent of their exposure. It is, therefore, curious to see how many large organisations are now publicly revealing plans to repay all furlough payments. For many, this is a chance to improve corporate reputation and indicate a commitment to restoring business as usual. However, with the significant pressures businesses have been under in recent months, many CFOs and FDs may not have the full visibility they require to adequately manage this without the power of audit.
This is about much more than reputational damage, the possible misuse of furlough is far from the only financial risk. The remarkable shift in every business’ modus operandi over the past months has unlocked the door for opportunistic fraud. New sources of income; staff working from home with limited oversight; the financial pressures – both business and personal – created by the recession. The exploitation of assets should be a serious concern for any business.
For organisations that have counted on grants and loans to survive, an employee misusing the lack of oversight to syphon funds for personal use could tip the company into failure. Companies must decide how – or whether – deferred VAT payments and loan repayments can be made. Is the company truly solvent or no more than a ‘zombie’ business operating with a balance sheet supported by short term government finance?
Business resilience and reputation is a priority in this era, and CFOs or FDs may have difficulty establishing trust across businesses now operating under a whole new range of pressures, from slimmer margins to a disjointed, remote workforce. There is an obvious need for complete visualisation of financial risks, and accountants play a critical role in revealing this data.
The rapid identification of faults in government support applications, potential fraud and the analysis of which deferred payments and loan repayments can be made and when – whilst ensuring other risk factors do not compromise business stability – is crucial to futureproof the business, and accountants can assess data to provide this information in a complete and actionable format to drive smarter company decisions. This data insight is essential for CFOs and FDs today.
Conventional financial risk assessment models will not be acceptable. At best, problems will be revealed months after the fact. Companies need rapid identification of areas of unexpected activity today. This is where accountants and finance departments using sophisticated machine learning and artificial intelligence techniques can provide real business value by rapidly assessing financial data and revealing unexpected activity. Armed with this information, finance teams will know where to concentrate activities, the questions to ask and the correct action to take. This information will be crucial to ensure business success and growth as the nation gets back to its feet.
In summary, accountants and finance professionals can present the answers businesses need whilst supporting managers planning for the future, despite the changes in policies and protocols as the pandemic continues to throw curveballs. An audit can quickly find problems including but not limited to, cash flow, fraud, misuse of grants, loan repayment issues – all whilst offering the guidance to protect the business to boost resilience and safeguard the solvency and reputation.