GCC companies must focus on fraud, says Ernst and Young

Mr. Quinlan was commenting on the findings of Fraud: Real Solutions to a Real Risk, a report recently published by Ernst & Young's Global Investigations & Dispute Advisory group (GIDA), which highlights the real risks of fraudulent practices in the work place together with practical solutions in the fight against fraud. The report constitutes Ernst & Young's 8th Global Fraud Survey, and provides detailed examples, case studies and checklists used by the experts to graphically illustrate the impact of fraud on an organisation, the category of employees who are likely to be committing these acts, and how the impact can be minimised.

Mr. Quinlan added: "As businesses get bigger and more complex, internal systems are neither keeping pace nor coping with these changes. Top management is getting farther from the detailed supervision by delegating such work to middle management, creating more opportunities for fraud. Awareness of fraud should force every board director to take responsibility for their company's defenses and ensure they have strong controls in place; failure to do so could lead to businesses facing ruinous financial and reputation damage".

"The banking, construction and real estate sectors are experiencing the most growth in the UAE. Globally, these sectors have traditionally been prone to fraud. Therefore, it is essential, in a rapidly emerging market like the UAE, that top priority is given to dealing with fraud in these key sectors. Safeguards must start early and come from the top to prevent long-term symptoms that will impact profitability and success. Like any other operational or business risk, ultimate responsibility for minimising the threat of fraud rests with the board of directors and senior management team", stated Mr. Ali Al Shabibi, Business Risk Services practice leader in Dubai.

Mr. Al Shabibi further said that Ernst & Young's professional advisors work with some of the world's top corporations and businesses to closely assess and analyse, along with senior management, how to help direct and resolve issues related to fraud.

Minimising the risk
From anti-fraud policies and control systems through to practical steps taken once a fraud has been discovered, the report provides directors with the necessary "armour" in the ongoing battle against fraud.

According to Ernst & Young, combating fraud should take a two-pronged approach - first, ensuring that opportunities for fraud do not arise, and second, ensuring that the fraudster believes that he or she will be caught. "When a fraud is discovered there is a need for clear, prompt and appropriate action. A fraudster has to know you mean business if he is to be deterred, this is a lesson every director must learn," stressed Mr. Quinlan.

In common with any crime prevention strategy, the key to minimising the risk of fraud lies in understanding why it occurs. Fraud generally involves the identification of an opportunity, such as a weakness in the system, combined with a perception that the potential rewards outweigh the risk of detection and detention.

Remedial actions recommended by Ernst & Young include:
• Reducing opportunities for committing fraud
• Regular reviews of internal controls and processes (i.e.Internal Audit)
• Having a fraud contingency plan that can be implemented once an act of fraud has been discovered
• Setting up fraud hotlines, preferably managed by a third party

Ernst & Young's 8th Global Fraud Survey also seeks to dispel the myths surrounding 'computer fraud'. In the eyes of Ernst & Young's fraud investigators - computers are only an additional tool in a fraudster's inventory. The report suggests that while more than half of respondents were worried about the risk of computer fraud, only one in five were concerned about false accounting. Ironically, false accounting has been at the heart of all the major corporate scandals of recent years.

Know your fraudster
Ernst & Young Global Fraud Survey showed that 85% of the worst frauds were committed by insiders on the payroll. So what are the warning signs? Ernst & Young has identified a number of signals, based on people, processes and profits, which individually may not cause alarm, but when regarded together could raise suspicions.

For example, if management is dominated by one person or a small group with no effective oversight board or committee, if there are no processes or checks on employees and suppliers and there are an unusual amount of complex transactions that have a significant effect on earnings or are too difficult for a layman to understand, or if there are unusually high or unexpected levels of profits or losses compared to the industry norm - it's time to start investigating.

You've found the fraud, now what?
Matters to be considered and incorporated within a fraud contingency plan include: agreeing to the fraud contingency plan, designating who leads the investigation, setting objectives and powers of the investigation team, conducting the investigation - identifying the suspects, obtaining and preserving evidence, working with the police, and reporting and publicity. A fraud contingency plan includes managing the fall-out from the fraud act on the reputation of the business as well as managing the investigation.

For a copy of Fraud: Real solutions to a real risk contact Lamice Murshid on +971 4 332 4000