Fraud in times of social disruption

80% of Certified Fraud Examiners say fraud levels rise in times of economic distress.[1] While the covid-19 situation is still ongoing, we can already see the impacts it will have on our economy, high unemployment rates will most likely be seen for at least several months. What are the risks we should be paying attention and preparing for?

When the way we live and work changes significantly and unexpectedly, fraud thrives. And during periods of social and economic disruption, the change within organizations can be profound.

Customers bring new questions, and behave in new ways. Employees grapple with new channels, new processes, in new working environments. And career fraudsters adapt their operations to exploit new opportunities. Fraud is a business and it must stay profitable.

For leaders, managers and fraud experts working to help protect their organization and its customers, understanding this new fraud landscape is vital. So is understanding how to respond.

Disruption creates new opportunities for career criminals

Like any effective business leader, experienced fraudsters will rapidly adapt in times of disruption, adjusting the focus and nature of their operations. They might put aside specific fraud attacks, entire industries, prioritize new attack vectors or simply use the chaos and confusion to develop new methods and schemes. We have seen - for example - subscription fraud go down in telcos around the world while account takeovers were going up. That's because fraudsters are adapting to the new reality they must evolve in.

Disruption drives people to seek answers from the organizations they rely on, to reactivate old accounts, sign up for emergency schemes, question refund policies and check stock levels. As we’ve seen with COVID-19, even in industries where disruption causes a downtick in contact volumes, emergency measures may reduce agent capacity to the point where demand hits an all-time high.

Fraudsters know that agents under increased pressure are more susceptible to social engineering. If they’re operating away from supervisors and colleagues, they’re also more likely to simply guess the right course of action—creating cracks in ordinarily secure ID and authentication processes. The rapidly changing internal processes make it more confusing for agents, and their inability to communicate easily with colleagues make them more susceptible to social engineering.

What’s more, fraudsters know that their suspicious behavior is harder to spot. With regular customers behaving in irregular ways, fraud management teams face higher workloads, and are likely to take longer to detect their activities. They are also well aware of the industries that - on the contrary - might have a significant decrease in legitimate activity and will avoid those businesses where fraud ressources might be more productive and efficient because of decreased general workload.

Professional fraudsters’ ability to act fast is clearly borne out by recent experience; it’s estimated that COVID-19 related fraud has cost the United States $24M in the first four months of 2020 alone.[2]

Disruption makes occupational fraud more common

It isn’t only professional criminals that threaten contact centers during times of disruption. It’s trusted members of the service organization.

Social disruption can provide both the opportunity and the financial pressure needed for formerly honest service agents to defraud the companies they work for.

The opportunity can come from changes to ordinary working life—for example, a move to remote working, away from the gaze of supervisors, and the policies and culture of a physical contact center. It can also come from diminished internal checks. Audit and compliance departments are often the first to be cut by organizations facing adverse conditions.

Following the Great Recession of 2007-2009, the Association of Certified Fraud Examiners (ACFE) asked experts to identify the primary driver of high occupational fraud during the downturn. Almost half said increased pressure on the perpetrators.[3]

Job losses and financial uncertainty can place huge pressure on service agents and their families—providing the push they need to break the law.

Disruption drives trusted customers to act illegally

Many customers will be feeling increased financial pressures too. They may have lost their jobs, or their partners may have lost theirs. The disruption might have brought additional, unplanned for expenses, such as significant healthcare bills.

In these extreme circumstances, formerly honest customers are more likely to cross the line into criminal behavior—whether it’s falsifying an insurance claim, or committing chargeback fraud, or applying for aid they know they’re not eligible to receive. Opportunistic fraud requires its own set of prevention measures.

For example, one Nuance customer has seen a 2x increase in fraud attempts by legitimate account holders during the current COVID-19 pandemic.[KH3] 

Face today's threats and prepare for the future

A robust fraud mitigation strategy for periods of disruption should include measures focused on internal culture, processes and technology.

Technology is especially key when it comes to minimizing the additional opportunities that disruption creates. It can help remove personally identifiable customer information from agent screens, and even proactively identify known fraudsters and newly dishonest customers. It can also keep agents connected to supervisors, peers and best practices, and reduce call volumes and average handle times—so agents remain tough to socially engineer.

The first, biometrics, is already transforming customer experiences in multiple industries worldwide, by increasing the efficiency and security of ID and verification processes. It also focuses on the individuals committing fraud instead of suspicious behavior, making it less prone to high false/positive spikes when consumers start radically changing their behaviors. It's also faster and requires much less data than traditional risk-based fraud detection engines. The second, credibility detection, is an emerging field—and a compelling opportunity for any forward-thinking organization that’s seeking to ensure current disruption becomes a catalyst for positive transformation.

Managers and leaders should also make sure they create a work climate that doesn't induce more stress and anxiety on employees needlessly. Frequent communication, proper channels for internal exchanges, all of this can reduce the risk of seeing an employee committing occupational fraud.

As long as we're aware of the new challenges and risks the coronavirus brought, we can take concrete measures right now and for the future to mitigate those risks, all while maintaining great customer experience and flexibility for our employees.

---------------------------------------------------------------------------------------------------------------

[1] https://www.acfeinsights.com/acfe-insights/coronavirus-pandemic-is-a-perfect-storm-for-fraud

[2] Source: https://www.ftc.gov/system/files/attachments/coronavirus-covid-19-consumer-complaint-data/covid-19-daily-public-complaints.pdf, accessed 6th May 2020.

[3] Source: https://www.acfe.com/uploadedFiles/ACFE_Website/Content/documents/occupational-fraud.pdf