A “perfect storm” created increased exposure to cyber, social engineering, phishing and CEO fraud, finds new research

The remarkable circumstances over the past two years, including rapidly-changing work practices, a move to remote working, and the factors that usually drive instances of fraud higher (opportunity, rationalisation, and pressure/incentive), created a perfect storm in terms of the likelihood of fraud occurring and going undetected.

This is according to a report from the Internal Audit Foundation and The Institute of Internal Auditors (IIA), in collaboration with Kroll. The report is based on a global survey.

The results show organisations faced increased exposure to cyber, social engineering, and phishing attacks, as well as instances of impersonating senior management in order to embezzle funds.

More than half (54%) of survey respondents noticed an increase in cyber and phishing fraud, while 40% noted an increase in fraud relating to asset misappropriation.

“No aspects of business operations have been immune from pandemic disruption, and we wanted to see precisely how that disruption impacted organisations’ fraud risk management practices,” said Anthony Pugliese, CIA, CPA, CGMA, CITP and president and CEO of The IIA.

Case for risk management

“As companies increase investments in new technologies, it’s clear that when the independent internal audit function is actively providing assurances of internal controls and risk management systems, the impact of fraud is reduced.”

As a result of heightened fraud risks, 36% of respondents said they had devoted additional resources to internal controls, and 29% had devoted additional resources to data analytics.

Since the start of the pandemic, business leaders have required internal audit to take a more proactive and flexible continuous assurance approach.

The most successful organisations were flexible enough to respond quickly to these circumstances by implementing changes that positioned them for future risk planning.

“We have seen the external, organised threat of fraud, for example through cyberattacks and social engineering, strengthen during the pandemic, with the internal threat becoming increasingly hard to identify and remediate,” said Matthew Weitz, associate managing director, forensic investigations and intelligence, at Kroll.

“This has driven a rethink of the role of internal audit with many internal auditors stepping up to become more strategic advisors in the fight against fraud.”