Financial Preparedness for Aftermath of Pandemic: Drawing insights 

Article by CA Nitin Kumar Jha

The current average loss to the organisation due to fraud is 5% of the revenue and loss in absolute amount is of $ 3.6 Billion globally (In 2077-78 the budget of Nepal was $ 12.44 Billion).

How we might get impacted?  

We together have fought and withstand the great Jana Andolan II of 2006, Madhesh Movement 2007 and a spine-chilling earthquake of 2015 which affected hundreds of thousands of our brother and sisters. Centuries-old buildings and artefacts were destroyed at UNESCO World Heritage Sites but as sung in our glorious history we stand together and gathered ourselves from scratch and rise like a phoenix. So I don’t have a pinch of doubt that we will not thrive this pandemic too but my worries are more what after that?

• Economic slowdown
• Unemployment;
• Corruption
• Recession

Seeing the global trend we cannot rule out these possibilities, because the last pandemic itself was gruesome enough to weaken our neighbouring country as well as European country who have well health infrastructure, so we are no exception, but it is very much possible to downscale the impact and pervasiveness of the aftermath by identifying the risk areas and applying the correct measure to shield the economy. 

How prepared are we?

As per the world bank report, the projected growth rate for Nepal for FY 2020-21 was 0.6 percentage, these figured are dragged lowered by three factory decreasing remittance inflow, the stagnancy of the tourism industry and paralysed international trade due to multiple travel restriction and sanctions. This could worsen further due to Delays in vaccination and/or new outbreaks of the second variant of COVID-19 both domestically and globally, which would dampen prospects of economic recovery.

Last year our government has implemented well tested triangular approach to support and aid its public to thrive over the first strain by putting the lockdown to restrict the spread, tax measure to save the entity and economic stimulus to ensure liquidity in the market. But the second strain is more severe and brutal, as we can sense from the ongoing condition of our neighbour nation, the business will be pushed to neck to survive Drawing on lesson learned, I believe that the business community should be prepared for the pragmatic issues and we will evident in the some of the areas which will change our outlook and ways of doing business. Some o the area that I believe is very crucial are:

1. Surge in NPA and Evergreening of loans:   

Despite the fact that loan is highly securitized, it is likely that quality of loans to small and medium enterprises and the personal loan will deteriorate post-Covid due to increasing unemployment and closure of SMEs. Because business and individual have not yet recovered completely from the first strain of the Covid and this second lockdown will push them further. So regulator should be prepared to handle this upcoming wave.  The surge in the evergreening and straw loan is very common during a similar situation.  

2. Increase in unethical practices:

The pandemic will give rise to unethical practice; currently, our country is placed at 117 out of 180 countries in corruption perception index 2020. This could go further down due to the prevalence of work from a home culture which result in less supervision and check over the work of other and complete failure of the existing control framework due to immediate migration from the offline working system to online. Some of the examples is online KYC, Tender process. The organisation including the regulator should be prepared to counter these situations through farming the policies and framework for deterrence.

3. Risk to emerging capital market:   

Each one of us must have seen the show “Scam 1992”, these incident are very common globally, every year capital market scams are reported, from the studies, it appears that situation like these (Pandemic) trigger such tragic incident which end of wiping the wealth of common man. The pressure to perform and meet stakeholder expectation in the financial left them with no other option other than manipulating the annual reports. Therefore investor and regulators should be more awake than ever because the capital market of Nepal has slowly started winning the trust of the investor any tragic event would adversely affect the economy.  

Some of the schemes that are prevalent are channel stuffing,

Preponement or Postponement of revenue to service purpose, Inventory over/underreporting, non-evaluation of key estimates/assumption, Capitalization of expenses.

4. The implication of nonperformance of commercial contract:    

It is highly unlikely that any commercial contracts would have a specific clause pertaining to force majeure in relation to the “corona outbreak”. So the management should in advance discuss mutually pen down these issues because non-performance and delay in delivery are likely to happen to national and international restriction.  But it is suggestive that the company should be legally prepared with a defensive argument (international precedence) for the worst-case scenario. 

Let’s come together not just for personal health but also for the economic health of the person”. 

5. Awareness about business email compromises:    

Our country has always welcomed new technology and innovation, though during this pandemic the implementation was done abruptly which open the door for fraudsters. Let me explain this through one real-life example Company XYZ ( Customer) ordered oil amounting to  NRP 197 crore from Saudi Oil company ABC ( Supplier ). The customer received oil and the supplier requested payment. The reminder email for the payment was received from Amir.Saikh@ɑbc.com, he is director of SCM and well known to all, email requested the customer for urgent payment due to closure of operation from next week due to increasing cases of Covid. In the email, Amir has mentioned the Bank Account number and other relevant details, the employee of the Customer company take approval and made the payment but later it was realized that the email was a phishing email because the actual domain main of the supplier is  Amir.Saikh@abc.com. This kind of attack is very common but brutal for the companies, so awareness training should be organized for the staff.

Readers are welcomed to respond to me highlighting the difference between email id on Jhanitin1993@gmail.com

Apart from the five mentioned above there any multiple other as well like disruption of the supply chain, risk of espionage & reputational risk and many more which we will change the conventional ways of looking at risk.

If the reader finds this article interesting, I will write further in detail, how to battle and bottle these evolving threats on business and on other emerging areas like How to build and implement robust anti-bribery policies, How to check the risk of financial statement fraud in small business, How to resolve the liquidity issue of the business and many more. Further, your suggestion is an inspiration and always welcomed.

About the Author:

This article is authored by CA Nitin Kumar Jha, he is a Chartered Accountant and  Associate member of Certified Fraud Examiner, He is an experienced consultant working with one of the biggest consulting firms in the world for the last 3 + years. His ability to identify and understand the business problem and suggest the appropriate solution have always been proven helpful to the client in past.

Mail: jhanitin1993@gmail.com