Fraud instances could possibly rise at an even quicker pace in the current scenario, as fraudsters could take advantage of the sudden disruptions and operational challenges caused in the e-commerce space by the Covid-19 outbreak.
- By Harsha Razdan & Mustafa Surka
The Covid-19 pandemic has led the world into an unforeseen health and economic crisis, altering lifestyles, preferences and habits of consumers and also the way organisations will operate. Consumers now more than ever would prefer shopping in a manner that is convenient, safe and hygienic and the e-commerce space meets these requirements. As the e-commerce space continues to grow globally, it is also solidifying its foothold in the Indian marketplace. Today lockdown restrictions have driven technology-averse consumers towards using technology for delivery of food and online shopping of essential products. It is likely that this will result in more consumers transitioning to online shopping for essential and non-essential products in the long run due to convenience, ease of use, benefits of hygiene and change of habits. This in a way could further propel the growth in the e-commerce space.
The rapid growth of the e-commerce sector has also inadvertently led to a rise in frauds. The number of online shopping frauds registered with the National Consumer Helpline has jumped nearly six times from 977 cases in FY17 to 5,620 cases in FY20 till November 2019, taking the total count of cases since FY17 to 13,993.
Fraud instances could possibly also rise at an even quicker pace in the current scenario, as fraudsters could take advantage of the sudden disruptions and operational challenges caused in the e-commerce space by the Covid-19 outbreak. The various ways of committing fraud and wrongdoings that may emerge in this sector could be as below.
- Sales and distribution fraud: Employees and fraudsters could work in collusion due to low focus on compliance in a remote-working scenario. There could be a creation of fictitious customers to misuse sales promotion schemes/cashback offers, abuse of new user promotions, misuse of electronic gift vouchers among others due to increase in the count of consumers subscribing to e-commerce platforms during the lockdown.
- Counterfeit, expired and damaged products: Such products could be put into circulation on e-commerce platforms, to meet the increased demand and perceived shortage of essential products.
- Kickbacks, bribes and conflict of interest scenarios: Third parties and vendors appointed during the lockdown period with limited or no due diligence could lead to vendor favouritism as a result of collusion between employees and vendors.
- Logistics and inventory management: Pilferage of original products by delivery personnel and, pilferage of products from the warehouse or during transit due to shortage of manpower during the lockdown period.
- Hiring of unsuitable/unethical employees: Such hiring by e-commerce organisations to cope with augmented demand and manpower shortage or inaccessibility during the lockdown period as candidates may submit fictitious credentials to secure these jobs
- Cyber fraud: This could be on the rise due to the remote working, demand for essential products and augmented digital transactions, which could then lead to data breaches and loss of intellectual property for e-commerce organisations. These could be by way of phishing/vishing attacks, fake websites/mobile applications, fake customer care that preys upon customers and coerces them into providing credentials or remote system access, charity scams that solicit donations for non-existent charities falsely claiming to help individuals or areas affected by COVID-19 and lastly leakage or misuse of personal consumer information.
With the Covid-19 pandemic seeing a gradual rise on a day to day basis organised criminals are seeing more opportunities to defraud e-commerce organisations and consumers. It is recommended that organisations take the below reactive and preventive measures, as required, to shield themselves from frauds and wrongdoings.
- Root cause investigation of suspicions or complaints regarding wrongdoings
- Fraud risk assessment of key business processes
- Compliance reviews to check adherence to the applicable laws and regulations
- Due diligence checks for new/existing sellers and third parties
- Employee background checks to screen prospective employees
- Conducting fraud awareness sessions for employees, sellers and third parties.
In summary, organisations need to be vigilant, practical and proactive to build robust mechanisms to thwart malicious fraudsters that seek to exploit this crisis for their own benefit. Authorities, consumers and organisations will need to work together and take the required steps and precautions to curb this menace and prevent fraudsters from taking advantage of the current situation.
Harsha Razdan is the Partner and Head of Consumer Markets and Internet Business and Mustafa Surka is the Partner – Forensic at KPMG in India. Views expressed are the authors’ own.