A successful fraud prevention program takes planning and effort. However, the results are well worth it. The best way for internal audit firms in Dubai to limit exposure and minimize losses from fraudulent activity is to establish a solid system for internal controls.
What is Fraud?
Fraud can be defined as the deliberate deception of an individual, group, organization, or other entity to gain monetary or personal gains. Fraudulent activity can include deceitful or false conduct, misrepresentation, and false statement.
It is hard for internal audit services Dubai specialists and financial statement users to detect fraud in real-world environments because fraud’s inherent motivation is to deceive and commit fraud. Organizations worldwide face significant challenges, especially in large corporations with interconnected systems and processes. It is difficult to identify the fraudulent motive and determine the root cause.
What Internal Controls Help Prevent Fraud
Preventive control is an internal control process that prevents fraudulent activity. Internal controls to stop fraud eliminate the possibility of fraud being committed or concealed. Both manual and automated controls can be used to avoid fraud. An expense reimbursement application, for example, can be used to prevent fraud by restricting a user’s ability. They shouldn’t be able to request and approve their reimbursement. As preventive control, the system requires independent approval.
However, the control environment will still contain both preventive and detective controls. After fraud has been committed, detective controls can be used to identify the scam. An analyst working in expenses may do data analytics to identify anomalies in transactions in the past. These results may indicate that an employee consistently submits reimbursement requests below the threshold for receipts. This suggests that fraud has occurred, and someone should continue to inspect.
The internal audit services Dubai team should implement internal controls to detect and prevent fraud in all daily processes. Fraud controls should not be considered an afterthought in any organization. The fraud prevention program should include awareness training for management to enhance the ability to detect and prevent fraud. A robust control environment includes many controls to minimize fraud losses.
According to a study report by ACFE 2020 Report to Nation on Occupational Fraud & Abuse, employee fraud can cause a loss of 5% in annual revenue for most organizations. Asset misappropriation such as theft, cash, and property, fraud, and corruption (deliberately misstatement, misrepresentation, or omission of financial statement data) are the most common types of fraud.
Parties Responsible for Maintaining Internal Controls
Management is responsible for implementing, evaluating, and maintaining internal controls to prevent fraud. As consultants, other teams like compliance or internal audit can help with control design, effectiveness testing, and inspections in case of fraud red flags.
How Important Is Prevention And Early Detection To Reduce Fraud In a UAE Organization?
Early detection and prevention are crucial to reducing fraud cases in organizations. The role of internal controls is critical to reducing fraud opportunities. Dubai, UAE organizations can expect to lose significantly less due to fraud if they implement the anti-fraud best practices and internal controls.
Segregation of Duties
The Institute of Internal Auditors (IIA) describes the idea behind segregation of duties by saying that “no employee/group of employees should be able both to perpetrate or conceal fraud in the normal course of their duties’ duties.” This means that one person’s work should either be independent of or serve to monitor the work of the other. The IIA classifies an employee’s duties into three categories:
- Custody of Assets,
- Approval or authorization of associated transaction impacting assets.
- Recording and reporting related transactions.
Reimbursement of Expenses
The ACFE’s 2020 Report to the Nation-states that many asset misappropriation schemes involve employees claiming reimbursement for fictitious business expenses. Managers should ensure that employees know the policies and procedures regarding employee reimbursements. They should also make sure to update them as necessary. Along with the direct supervisor, key stakeholders such as payroll or internal audit should approve the flow of such reimbursements.
Federal laws governing corporate whistleblowers encourage implementing a robust corporate whistleblower system. This is done by protecting employees’ rights, sub-contractors’ interests and creating an awards program that rewards whistleblowers. Management is responsible for implementing a robust whistleblower program, despite the federal regulations. Employee tip-offs have been the most effective method of fraud detection in the past. Management cannot afford to ignore an internal whistleblower system within their company.
Periodic Reconciliation Of Bank Accounts
Bank reconciliations show the difference between cash per balance sheet (cash) and bank statement. They also confirm the data in the organization’s cash ledger. Bank reconciliations can be performed every day, weekly or monthly, depending on the size of an organization. Unexpected differences are identified and prevented from happening again.
The proactive management approach to detecting and preventing fraud will reduce the chances of fraud in an organization and foster an ethical culture.
Let Audit Firms in Dubai Help You with Your Internal Audit Process
Experts like Farahat and co. provide bespoke audit services in UAE and beyond. For more about our accounting and auditing services, touch base with our certified internal audit in Dubai team.
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