Increased Reports of Fraud in the Technology Industry

Reports of Fraud in the Technology Industry

A recent study by the Association of Certified Fraud Examiners (ACFE) found that the number of fraud cases is increasing across all industries, but with the rise in the popularity of online transactions, technology-related crimes have grown significantly. In fact, the ACFE reports that technology-related fraud increased 21% year over year in 2021.

In the case of telecommunications, the number of fraud cases has gone up sharply. This includes everything from SMS phishing and fake subscription fraud to network hacking and extortion. For utilities, the median loss of a fraud case has also risen sharply. Fraud in these areas involves tampering with meters, false claims for utility services and using others’ information to order services.

Fraud in the Technology Sector

Revenue recognition fraud, which may include recording sales transactions with fictitious customers and fraudulent documentation of meeting revenue recognition criteria, has climbed to the top of the list of common fraud schemes. This is likely due to the pressures that some analysts and investors put on management to manipulate revenue trends, as well as a lack of robust internal controls that could help prevent such manipulations.

Increased Reports of Fraud in the Technology Industry

Another type of fraud that may be more prevalent in the COVID-19 era is asset impairment fraud. In this scheme, a company hides the impairment of its assets from the financial statement through fraudulent accounting practices, such as extending the lives of equipment indefinitely or distorting indicators that the asset is impaired. These frauds can be more difficult to detect in the volatile COVID-19 environment and, when not caught, may lead to regulatory actions.

Understanding fraud in the technology industry

Finally, it is possible that the heightened stress of operating in the COVID-19 era has contributed to an increase in fraud related to compensation and benefits. For example, it is not uncommon for a senior executive to take on additional responsibilities during a pandemic and receive bonus payments in return. This type of fraud can be difficult to identify and requires the cooperation of management, employees and auditors.

Detecting and preventing fraud in the technology sector

As the threat of fraud grows globally, it’s important that companies continue to invest in strong internal fraud prevention. The good news is that, with the right tools and resources in place, most organizations can achieve an acceptable balance between risk-based and customer-centric control strategies that protect against fraud and other threats. This approach can ensure that businesses are able to maintain the integrity of their financial statements, meet compliance requirements and remain competitive in their markets. This article explains the key steps that businesses need to take to implement an effective fraud management program and monitor third-party risk. It also offers a number of best-practice tips to help companies develop an integrated framework that addresses the risks in their business environments.