What Can We Learn From These Notorious Financial Scams?
February 8, 2022
Estimated Reading Time: 5 minutes
Occupational fraud rose by 90% in the first year of the pandemic. With the rapid shift away from physical offices, employees transitioned to a mix of remote-based tools and devices, some secure and some vulnerable to sophisticated financial scams.
71% of 600 finance professionals in North America say that lack of visibility in the payables process left their department open to fraud during this time of uncertainty. Now, businesses are at particular risk from both traditional and new types of financial crimes, such as vendor fraud, expenses embezzlement, phishing scams, fake invoices, and more.
Here’s a look at some scandals from last year that uncovered how others were duped into financial scams, and what you can do to avoid it.
Joseph Kostelecky, a former executive at Canadian oil services company Poseidon Concepts, pleaded guilty to fraud charges of misleading shareholders about his company’s value. This eventually forced Poseidon to go bankrupt and led to more than US$886 million in losses. According to reports, Kostelecky falsely stated approximately US$100 million in revenue from contracts that either didn’t exist or were considered uncollectible.
After admitting to inflating the value of Poseidon’s stock price and gain through the appreciation of his stock and stock options, Kostelecky pleaded guilty to one count of wire fraud and one count of securities fraud.
To avoid this: Automated document matching will match vendor invoices, purchase orders, and payment information, which will help prevent employees from manually entering information. An AP automation solution like Beanworks uses AI to automate manual and repetitive tasks in accounts payable, freeing up more time for high-value activities such as ensuring all transactions are valid. It also helps deter fraud by eliminating manual processes that provide opportunities for record tampering and falsified approvals.
An own goal
Italian authorities are investigating top officials of professional soccer team Juventus for rigging the books from 2018 through 2021. Reportedly, the Turinese club inflated the value of some of their players when conducting transfers. Juventus may be found guilty of providing false information to investors as a result of the investigation into its alleged accounting fraud. A press release published by the Public Prosecutor’s Office states: “At present, the activities are aimed at ascertaining the crime of false communications from listed companies and issuing invoices for non-existent transactions, towards the top management and the managers of the business, financial and sports management areas.”
To avoid this: Cloud-based workflows generate audit trails and help prevent internal and external risks by flagging duplicate payments and invoices. When all accounting processes such as POs, invoices, payments, and expenses are integrated on one platform, data flows seamlessly. The cloud-based technology also handles vendor banking data management security. Some payments providers also assume liability for correctly paying vendors. Every transaction is insured with a guarantee or warranty.
Last summer, the Vatican accused ten individuals, including a cardinal, of financial crimes, including fraud, forgery, embezzlement, and abuse of office. Cardinal Giovanni Angelo Becciu allegedly used charity money from the Vatican to benefit his brothers’ businesses. This includes an investment in the fossil fuel industry in Angola, as well as the wrongful purchase and sale of a “grossly overestimated” property in London, UK. Becciu was dismissed by the Pope, as reports of financial misdeeds emerged.
To avoid this: Businesses can set up a detailed approval matrix based on budget, department, vendor, etc., to avoid unauthorized transactions. Approvers are notified online as soon as expense reports are submitted, and they can accept or reject the claim–even through their mobile phone. Discrepancies like duplicate invoices are automatically flagged in the system. With all details of transactions stored on a central platform, internal and external audits become a lot simpler.
Breaking hearts — and bank accounts
Banking and Payments Federation Ireland (BPFI) is warning the Emerald Isle about romance scams that have been on the rise since the start of the pandemic. This type of fraud involves people being conned for money after meeting someone through a dating app or social media. The fraudster will fake a romantic relationship with the victim before prompting them to send money. According to reports, this type of crime incidences soared by 150% in 2020, with a similar spike noted last year.
Phishing scams are on the rise for businesses as well. According to one report, they increased in scope, frequency and cost in 2021, representing 25% of all financial attacks in the first quarter. Instead of posing as people looking for love, these perpetrators seek to hide their true intentions under the guises of legitimate business partners or vendors. They reach out to employees in targeted businesses through well-scripted phone calls and emails, hoping to garner trust as quickly as possible before luring victims into sending “emergency funds” or payments for falsified invoices.
To avoid this: Phishing scams are a common type of fraud that lures businesses into wiring their money. Your team must be aware of the signs of a financial scam such as invoices missing vendor details like address or a phone number, vendor using a free email provider such as Gmail, Outlook, etc., or incorrect grammar and typos in the email body. Beanworks AP automation helps reduce risk by enabling its users to set up a customized approval chain. This maintains security and adds accountability amongst approvers.
Kraft Heinz paid US$62 million to settle charges that its procurement division improperly managed to deliver unrealistic cost savings and inflate profits. The SEC alleged that Klaus Hofmann, Kraft’s former chief procurement officer, approved improper contracts. Further reports point to accounting misconduct, including falsified supplier contracts recognizing payment discounts the company hadn’t actually earned.
To avoid this: Automated document matching will match vendor invoices, purchase orders, and payment information, which will help reduce fraud within the organization. Beanworks automates the entire AP process – purchase orders, invoices, payments, and employee expenses – and syncs directly with the financial system. Discrepancies like duplicate invoices are flagged in the system, and internal and external audits become a lot simpler.
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