A global crisis is the perfect breeding ground for opportunistic fraudsters, internal misconduct, and a game of ‘shift the blame’.
Whilst business leaders focus their attention on keeping their business afloat, underlying vulnerabilities are being exposed, triggering a new wave of investigations and disputes.
Since the start of the COVID-19 pandemic, 71% of G20 companies have had, or are currently having, an investigation into financial practices. With this trend set to continue in 2021, it is not surprising that over 68% of companies have increased their budget for investigations, and in the US this figure is even higher at 84%.
of G20 companies have stepped up their disputes activity against third parties
1 in 5
G20 companies expect to be investigated on their use of Government aid in 2021
78%
of companies now use AI and analytics to monitor for scenarios impacting risk and compliance
Prevention is better than cure, and often we find that action is taken too late. Many businesses lack the time and resources to roll out a bulletproof risk prevention strategy, especially during a crisis. 37% of G20 companies admitted to being ‘mainly reactive’ at managing scrutiny and regulatory compliance, with 39% being reactive at managing fraud-related risks.
As pressure mounts from stakeholders, 65% of G20 companies have struggled to deal with the volume of regulatory alerts since the COVID-19 outbreak. Companies across all sectors are turning to technology to minimise the burden; 79% are using AI and analytics to monitor scenarios that might impact risk and compliance.
Looking ahead, an increase in anti-corruption and sanctions investigations seems likely. Investigations into the use of state aid are also likely to emerge in 2022 and beyond. 52% of respondents rated corruption as ‘likely and concerning’ in the next 12 months, and 47% said the same for an increase in sanctions. Companies should therefore fine tune their compliance programmes to account for this increased risk.
With supply chains in flux, businesses must deal with an environment where customers, suppliers and partners may face insolvency and restructuring, and where they themselves may face serious adverse consequences in maintaining pre-existing obligations.
Across the G20, business leaders reported that 20% of the total value of their customer or supplier contracts were under dispute. With company cash flows under significant strain, over 65% of G20 companies have resorted to stepping up their dispute activity to protect financial health. Disputes are only set to further increase in the year ahead.
Across sectors, 15% fear that arbitration or contract disputes are ‘likely and concerning’ over the next 12 months. Moreover, 20% consider supplier disruption or disputes ‘likely and concerning’.
Customer protection claims have been an even more salient feature of dispute and remediation activity; 40% of businesses have seen a spike in this already. Approximately 46% of businesses in each sector say they have seen a surge in such claims, with food and beverage and financial companies the worst affected.
The storm that is COVID-19 has by no means abated, and its business effects will linger. As companies continue to absorb losses, and both supply chains and business expectations reshape themselves to fit their changing environment, business leaders must continue to expect and plan for pressure on customer and client relationships.
Perspectives
