Blog Marcel: The future of business fraud

Recently I was asked what the business fraud outlook is for 2025. A question well suited to the end of the year when we celebrate life, take time for contemplation and look ahead to what the next year will bring us. But also a tricky question: I am not a psychic and, moreover, a poor forecaster. Therefore, I will never gamble and bet on the outcome of elections or on the outcome of a soccer game. That would be a waste of money that would be better spent by me on good causes. With my (modest) investments I do not achieve high returns either, noting that I have no confidence whatsoever in crypto's and the price of bitcoin is breaking record after record.

The Scientific Research and Documentation Center (WODC) regularly considers the question of how crime will develop. A question that is important for the deployment of (scarce) resources; after all, the capacity of the police and judiciary is limited. The WODC makes use of the Justice Prognosis Model (PMJ). Unfortunately, the predictive power of this model in the (medium) long term is not great. For example, the deviation after the first year appears to be about 8%, for three years ahead the average prediction error is 20% rising to just under 60% for a seven-year term.

I draw two conclusions from those figures. First, that the forecasting power is relatively high the first year. Second, that it (therefore) makes sense to produce an annual forecast so that changes in the crime picture can be monitored closely and the measures to be taken adjusted accordingly. In addition to the two conclusions I draw, my hypothesis is that the crime picture does not change quickly because the changes in the picture within a year are relatively small.

So I don't venture into grotesque predictions about the business fraud picture in 2025. Nor do you need to be a futurologist to see that fraud crimes are here to stay. After all, greed, greed for money and fraud are commonplace. In 2025 (and beyond) we will therefore have to remain alert to fraud risks and fraud prevention should (remain) on the agenda of directors and supervisory directors. Where they lack knowledge in that area, it is wise to be informed and assisted by accountants, fraud investigators, legal specialists and/or a fraud insurer.

Traditional forms of fraud will continue. For example, cash grab or theft of goods by staff. Fraud involving false declarations. Third-party scams, such as fake invoices or executive fraud. Obtaining kickbacks by purchasers and procurement fraud recurring. Doing business with other cultures and foreign countries carries corruption risks.

But management can also cross the line. Commissioners and supervisors should be alert to this. For example, when it comes to the so-called management override, in which the management makes a run at the measures of administrative organization and internal control. Committing tax fraud, such as turnover skimming, black payroll payments and dubious tax constructions. Reporting fraud by deliberately overstating the figures in financial statements or in financing applications to the bank.

Increasingly, businesses are also becoming victims of cybercrimes such as identity theft, hacking (with ransom demands) and phishing.

Two predictions I do venture to make concern greenwashing and the application of artificial intelligence (AI). As far as I am concerned, greenwashing is the fraud of the future. Now that many organizations must draw up a report on non-financial information in addition to their annual accounts, and for the time being auditors only provide these with a statement with a limited degree of certainty, a lot of 'creativity' from those involved can be expected. Creativity in the form of (too) positive stories about performance on ESG topics, or Environment, Social & Governance (often taken together under the term sustainability reporting).

Where an incomplete, inaccurate or misleading representation of the facts is made deliberately, fraud in the form of greenwashing will soon be involved. Companies that are already far ahead of their competitors in the ESG field will be able to put the brakes on their reporting by not reporting all their achievements and progress in this field. This "underreporting" allows them to "let the extra air they have already built up" drain out in the coming years. This is called brownwashing and is similar to the so-called "cookie jar reserves" in financial reporting.

In addition, I point out the increasing risk associated with the strong emergence of AI. The increasing use of AI leads to additional fraud risks. In particular, it will become even more difficult to distinguish fake from real. Frauds may become more sophisticated, detection will become more difficult. The aforementioned forms of cybercrime will become even easier to carry out.

Finally, I refer to the subject and offence of money laundering. The proceeds of fraud (as in the forms mentioned above) are derived from crime and can therefore be laundered. That subject, too, therefore, refers alertness. Although I dare not make a prediction in this one, I note that companies are increasingly using Private Equity (PE) rather than the more traditional forms of bank financing. But where exactly does the PE money come from? Can its origin be properly proven? Is it a legal origin?