During the holiday season, the public sector faces heightened vulnerability to fraud as reduced oversight and heightened pressures create opportunities for bad actors. It’s critical for agencies to recognize these vulnerabilities and to implement preventive, detective, and responsive measures.

Explore the top reasons that fraud is a particular risk this time of year, and where it might manifest, or skip straight to strategies for protecting your agency and consumers.

Causes and types of holiday season fraud

From Thanksgiving through the new year, watch for these risk factors and areas of increased vulnerability:

1. Increased transactions and demand

• Spike in demand for government services: The holidays can see a surge in requests for government services, such as social benefits or unemployment claims. Bad actors may exploit this increased volume to blend their activities into the rush.
• Rushed processes: The pressure to process claims, benefits, and vendor payments quickly during this time can lead to lapses in review protocols and oversight.

2. Cybersecurity weaknesses

• Seasonal cyberattacks: Cybercriminals are aware that public sector agencies often operate with minimal staff during the holidays, with personnel potentially handling tasks outside their usual assignments or working with unfamiliar colleagues. Additionally, holiday solicitations for donations or special events can make these agencies prime targets for phishing attacks, ransomware, and data breaches.
• Weaker system monitoring: During the holidays, limited personnel and increased distractions can lead to less frequent monitoring of critical IT systems, leaving them more vulnerable to attacks. 

3. Vendor and procurement fraud

• Quarterly/year-end contracts and payments: The end of the year can see a push to finalize government contracts and payments before the new fiscal or calendar year begins. This rush can reduce the level of scrutiny applied to vendor contracts, procurement processes, and payments, creating opportunities for fraud.
• Collusion and kickbacks: With reduced oversight, opportunities for collusion between vendors and government employees or officials may increase, especially in high-demand sectors like construction, IT, or healthcare.

4. Decreased scrutiny of internal operations

• Weakened internal controls: During the holiday season, standard internal controls may be overlooked or bypassed due to reduced staffing, the rush to meet deadlines, or even the rush to finish before vacation days. Employees with malicious intent may take advantage of this lapse to commit fraud, such as embezzling funds or manipulating records.
• Reduced audit and compliance checks: Routine audits, compliance checks, and other oversight mechanisms may be deprioritized during the holidays, giving fraudsters a window of opportunity to exploit internal vulnerabilities.

5. Public awareness and scams

• Holiday scams targeting citizens: Fraudsters often target the public’s interactions with government agencies during the holidays, using scams like fake notifications, impersonating government officials, or launching phishing schemes that seem to originate from public agencies.
• Overwhelmed citizens: During the busy holiday season, the public’s vigilance may wane, increasing their susceptibility to fraud schemes tied to government programs or benefit disbursements.

6. External pressure and political influence

• Political pressure for quick results: Public sector agencies often encounter political or public pressure to expedite processes during the holidays, such as issuing payments or approving grants. This urgency can result in reduced scrutiny, increasing the risk of fraudulent activity.
• Year-end funding rush: Sometimes, there’s intense pressure to quickly spend allocated funds before the year ends. This urgency can result in poor oversight and an increase in fraudulent expenditures.

7. Outdated or underfunded systems

• Many public sector agencies rely on outdated and less-secure technology infrastructures, making them more susceptible to cyberattacks. Budget constraints frequently hinder agencies from investing in advanced fraud detection systems or hiring more fraud professionals. These vulnerabilities are heightened during the holidays, when resources are particularly strained.

Key strategies for fighting fraud at the holidays

Agencies that recognize these vulnerabilities are best positioned to fight them. Consider these strategies to mitigate holiday season risks.

1. Increase monitoring and oversight.

• Get creative to maintain coverage: Make sure that there is sufficient staff coverage by hiring temporary workers or rotating staff schedules to maintain alertness, especially in critical areas like finance, procurement, and IT security. If internal resources are limited, consider utilizing third-party fraud monitoring services to oversee high-risk areas during the holiday season.
• Leverage data analytics: Use advanced data analytics tools to monitor for abnormal patterns or anomalies in financial transactions, benefits claims, and vendor payments. Flag and investigate high-risk transactions in real time.
• Activate fraud alerts: Implement automated fraud detection systems that trigger alerts when suspicious activities are detected. These systems can be customized based on historical fraud patterns common during the holiday period.

2. Strengthen internal controls.

• Enforce key control mechanisms: Even during holiday rushes, core controls like segregation of duties, regular reconciliations, and dual approvals should be strictly enforced to prevent both internal and external fraud.
• Limit access: Temporarily limit system access (especially for staff on leave) or increase security around sensitive systems and databases to reduce the risk of unauthorized access.
• Conduct and learn from post-holiday audits: After the holiday season, conduct comprehensive audits of transactions, claims, and contracts processed during the holiday period, to help identify any suspicious activity that may have been overlooked. Use audit findings to improve internal controls and fraud detection mechanisms in preparation for the next high-risk period.
• Audit vendor contracts and strengthen diligence: Conduct a thorough review of all vendor contracts and procurement processes before the holiday season to provide transparency and prevent potential conflicts of interest or fraudulent activity. Implement stringent due diligence protocols when selecting or approving vendors, especially for high-value contracts that may be rushed through during year-end procurement activities.

3. Update and fortify critical IT and security systems.

• Strengthen IT security: Increase cybersecurity vigilance by implementing multi-factor authentication (MFA), regularly updating software patches, and running penetration tests to identify potential vulnerabilities.
• Plan for 24/7 IT monitoring: Schedule continuous 24/7 cybersecurity monitoring throughout the holiday season, with a particular focus on critical systems such as payment processing and benefits administration.
• Automate identity verification: Implement automated systems for verifying the identities of individuals claiming benefits or engaging with public services. Automation helps reduce human error and can flag discrepancies faster.
• Use blockchain for transparency: Some agencies have started exploring blockchain technology to improve transparency in transactions and reduce the opportunity for tampering or fraud.

4. Conduct training on cyber threats and fraud detection.

• Fraud awareness campaigns: Conduct focused training sessions or refresher courses for employees to remind them of the risks of fraud and the importance of adhering to security protocols during the holiday season.
• Scam awareness for citizens: Launch public awareness campaigns to educate citizens about common holiday scams, such as phishing attempts and fraudulent claims related to public services. Providing tips for citizens to protect themselves can reduce the impact of fraud.

5. Implement cross-agency collaboration and program safeguards.

• Support information-sharing: Facilitate collaboration between various state and federal agencies by sharing fraud intelligence and reporting trends in fraud activity. This allows for a unified response to fraud schemes targeting multiple public services.
• Collaborate with law enforcement: Maintain clear communication and collaboration with law enforcement agencies to report and act swiftly on identified fraud cases, particularly those involving organized fraud rings.
• Pre-screen claims and verify identities: Apply enhanced scrutiny to claims for government benefits, unemployment, and welfare during the holidays. Use fraud detection software to flag unusual claims for closer review. Require that claimants and beneficiaries go through strict identity verification processes, such as providing multiple forms of identification or using biometric verification.

6. Conduct fraud risk assessments.

• Risk assessment prior to holidays: Conduct a fraud risk assessment prior to the holiday season to pinpoint the most vulnerable areas within your operations, such as benefits distribution, vendor payments, and procurement. Following the assessment, allocate resources to these high-risk areas accordingly.
• Scenario-based planning: Anticipate potential fraud scenarios that are more likely during the holidays, such as benefit fraud, cybersecurity attacks, and procurement fraud. Develop and implement response plans to mitigate these specific risks effectively.

7. Encourage a culture of vigilance and reporting suspicious activities.

• Solicit and monitor whistleblower reports: Set up or reinforce confidential and anonymous channels, such as hotlines or online platforms, for employees and citizens to report suspected fraud. Encourage whistleblowing by promoting a culture of accountability.  Actively monitor and respond to whistleblower reports, initiating fraud investigations promptly to address any suspected issues.

By implementing a mix of these strategies, government and public sector agencies can significantly lower their fraud risk during the holiday season, safeguard public funds, and preserve the public’s trust in government programs and services.