Over the past two months, strict social lockdowns and their economic consequences have created unique risks for public finances. Governments have announced unprecedented stimulus packages to support economies in response to the coronavirus pandemic, injecting trillions of dollars globally. While fiscal and monetary risks are likely to linger for years to come, the risk of financial crime is ever-present. Financial criminals will be poised to take advantage of this crisis.
Economic downturns often drive people to take risks in an attempt to save their businesses or personal finances. At the same time, they also help expose frauds that have been going on for years, which come to light as a result of decreased funding and reduced financial traffic.
Both organized criminals and opportunists view economic stimulus packages as ‘free money’ and an easy target.
For senior public finance professionals, the risks and examples of financial crime that have emerged in recent weeks have highlighted the need for a strong organizational culture based on integrity. In Germany cybercriminals set up clones of government websites to gather details from genuine claimants for grants, only to use these details to impersonate the businesses and claim support grants for themselves.
Risks specific to public sector procurement and supply chains have grown in the era of coronavirus, as the speed and volume of public-private exchange has increased. In many cases, due diligence protocols have been moved post-transaction, financial reporting deadlines have been postponed, and tendering processes have been paused. In the UK public sector alone, more than £1bn in contracts have been awarded to private companies to address coronavirus-related issues, the vast majority of which were awarded on an emergency basis without a tendering process.
The situation is even more critical when considering inadequate stockpiles of personal protective equipment (PPE) and emergency deadlines. Practically speaking, in addition to financial decisions being made quickly, decisions have been made with weaker bargaining power for public sector organisations. For entities desperate to secure adequate supplies of PPE, the end goal can undermine due process. Waving internal controls, paying more than necessary for products and services, and pressurized decision-making have all exposed what are already stressed financial management systems to immense levels of risk.
The integrity of staff members is crucial under these circumstances, to ensure that ethical behaviors are not compromised, even with good intentions. Maintaining the capacity to verify decisions alone is a challenge for many organizations.
These scenarios underline why a strong organizational culture is critical for public sector professionals in today's economic climate, ensuring that staff instinctively do the right thing and feel comfortable raising any concerns they may have about propriety. To minimize internal and external misuse of public funds, CFOs and other senior leaders must set a firm, but realistic tone from the top. Acknowledging that financial crime is a growing threat, promoting an organizational awareness of new and recurring risks, and confirming clear responsibilities and lines of communication can promote a practical, structured and well-informed workforce. With the majority of employees still working remotely around the world and unprecedented levels of public money circulating in markets, this tone from leadership can help stop both internal and external cases of financial crime.
In our recent supply chain guidance with England’s Local Government Association, we’ve developed three key points that can help shape the way public sector organizations deal with emerging threats related to the ongoing pandemic.
When protocols and methods designed to protect fall by the wayside, people are often the last line of defense. This focus on culture is important now more than ever to keep public finance systems functioning properly and to protect public money from the threat of fraud.
This article first appeared in Forbes.
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