The COVID-19 pandemic has significantly impacted healthcare, employment, and the economy. In the US, Congress passed the CARES Act to issue stimulus checks to the American public. Small business loan programs like the Paycheck Protection Program helped keep American businesses open during these troubled economic times. But still, many businesses are suffering, particularly those in the travel industry.
However, revenues at some accounting firms are increasing despite the pandemic. Let’s dive into why some accounting firms are thriving, while the rest of us can barely stay above water. Below we discuss the impact of COVID-19 on accounting firm revenue.
Fraud is on the Rise
According to the Association of Certified Fraud Examiners (ACFE), the COVID-19 pandemic has spiked the occurrence of fraudulent activity. Key findings from a recent survey suggest significant changes to the different types of fraud risk.
Per the ACFE, 77% of respondents indicated they had observed an increase in the overall level of fraud. Even more concerning, over 55% of the respondents’ organizations fell within the banking, financial services, government/public administration, and professional services industries.
In addition, 54% of respondents resided in the United States or Canada, suggesting that fraud is becoming more common in these countries. The increase probably won’t stop during the next year, as the impact of COVID continues to persevere.
In the ACFE’s survey, they asked respondents about 12 different types of fraud risk to assess how organizations have been impacted. The survey inquired about unemployment fraud, cyber fraud, healthcare fraud, insurance fraud, identity theft, and financial statement fraud.
As you can see in the charts, financial statement fraud and employee embezzlement have significantly increased. More importantly, the ACFE anticipates that both kinds of fraud will continue to increase at a rapid rate.
Internal Controls…from your Kitchen Table?
Most companies were not prepared to transition their non-essential workers to remote environments. Therefore, they didn’t have safeguards in place to protect them against the fraud that can occur when employees access sensitive data from their home offices.
Many people have resorted to working from their kitchen table and haven’t considered the cyber safety of their home internet connections. Now, employees have been granted access to confidential information from the privacy of their own homes. Cybercriminals are very aware of this fact and target home connections to steal sensitive data.
Plus, many companies are in survival mode because they have had to lay off so many employees. So, fewer employees are now expected to perform their same tasks as before AND take on the responsibilities that were once handled by others. For example, consider the cash receipt process.
If several positions have been combined into one due to the pandemic, mistakes can be made. Plus, without the checks and balances provided by multiple employees examining the same information, fraud can occur. Now that employees are taking on more duties, companies are experiencing higher incidences of the misappropriation of assets and fraud.
Plus, today’s employees are handling a lot of stress, especially if they are working from home at the same as their partners or while their kids are trying to do e-learning from home. This stress can lead to mistakes. Otherwise, savvy employees can miss the signs of fraud when they are stressed, or even be lured into committing illicit acts themselves.
So, how does this have any impact on accounting firm revenues?
Accountants provide their services to help companies detect and prevent accounting fraud. More so, accountants have a professional obligation to protect the public’s best interest above their own self-interest. Remember the extreme financial statement fraud that occurred in the late 1990s and early 2000s?
The subsequent collapse of Arthur Anderson led to more financial oversight and the creation of the Sarbanes-Oxley Act of 2002. Consequently, accounting firms now provide a plethora of services, including consulting services (also known as advisory services), tax advice, and auditing services.
Accounting firms can maximize revenues through their consulting services by increasing the services they provide to clients. For example, they can create strong internal controls that can prevent, detect, and correct instances of fraud. Accounting firms can also conduct extensive processes that mitigate the possibility of fraud occurring in the first place.
Also, the increasing levels of fraud highlight the need for an external, unbiased opinion on all financial statements. The increase in fraud means that audit teams may need to increase their scope of work or decrease their materiality thresholds. The goal of an audit engagement is to provide reasonable assurance that the financial statements are free from material error or misstatement, whether due to fraud or error.
Plus, the variety of loans, stipends, and other benefits offered to help corporations survive this pandemic will create opportunities for accountants. Corporations will need extensive tax accounting expertise to navigate how to report these uncommon occurrences.
Lastly, companies that once had an internal accounting department may be looking to outsource their accounting needs to cut costs. This will increase the revenue generated by full-service firms, and the need for a great accountant (or team of accountants!) will continue to grow.
Stephanie Ng is the Executive Committee member responsible for Finance at New Sight Eye Care, a charity registered in the United Kingdom and Hong Kong. She oversees the financial aspect of New Sight in Hong Kong, including accounting, taxation, financial management, and compliance.
She began her career as an investment banker at Lehman Brothers in New York and Morgan Stanley in Hong Kong. She later joined her client to work in the Group Finance Department, where she spent five years specializing in corporate finance, mergers and acquisitions, and debt refinancing. She also extended her role to management accounting and financial accounting and obtained her U.S. CPA qualification.
Stephanie also is a published author of the book How to Pass the CPA Exam. Additionally, she created I Pass the CPA Exam, the first CPA help site in 2010. Her guidance and mentorship have helped hundreds of thousands of candidates pass their exams.
Stephanie graduated with Phi Beta Kappa from the University of Chicago, majoring in economics with a second concentration in public policy studies.