Fraud: reports to SFO increased significantly during pandemic

Reports of fraud to the Serious Fraud Office (SFO) jumped 13 per cent in the year to 31 March 2021, the highest level in four years. 

Through a freedom of information request, Thomson Reuters’ audit confirmation solution, Confirmation, found 998 reports of fraud were made to the SFO in the year to 31 March 2021, against 882 in previous year. 

The SFO investigates serious or complex fraud, bribery and corruption, including any significant accounting and audit fraud. 

Economic stress due to the pressures of the pandemic is one obvious reason why fraud may be on the rise. Businesses may be engaging in fraudulent activity, such as misreporting earnings, to keep lenders or investors happy. 

Kyle Gibbons, Managing Director (Europe) of Thomson Reuters’ Confirmation said: “These reports to the SFO give an indication of the increased pressure the pandemic has put on businesses and senior executives that can lead to more fraud being committed”.

Thomson Reuters’ Confirmation suggests fraudulent activity could also be happening on the ground; for example, employees could be misreporting sales figures to ensure they hit targets.  

Auditors have also intensified efforts to identify fraud. Audit scandals such as Wirecard and Luckin Coffee have also led to increased public scrutiny and so the profession has been galvanised to improve audit quality.

From 15 December, auditors are required to comply with the Financial Reporting Council’s revised auditing standard, issued on 27 May, which states auditors must obtain ‘reasonable assurance’ financial statements are free from fraud. ‘Reasonable assurance’ is defined as a ‘high, but not absolute’ level of assurance. This may well lead to increased onus being placed on directors and other senior staff to vouch for the content of financial statements.

The list of circumstances which indicate the possibility of fraud has also expanded. From December, audit teams will be required to investigate any evidence of unauthorised access to IT systems, or contractors’ access to IT systems, inconsistent with the access required to carry out their work. 

Clients may find themselves under increased scrutiny due to auditors’ intensified approach and the new rules, with lawyers being called on for extra support.