MANAMA: Economic uncertainty could increase internal and external corporate crimes committed in the Middle East and globally, according to a recent survey by Deloitte on internal audit fraud.
"Companies in the Middle East and worldwide have an increased risk of falling victim to financial fraud within their organizations," Deloitte in its latest report said. "The economic downturn of the last two years has brought a number of high profile frauds to the surface, and in so doing, has created a heightened sense of awareness of fraud risk," it added.
According to the report, The Inside Story: The changing role of Internal Audit in dealing with financial fraud, the main drivers behind these crimes in the Middle East and globally of which the most prominent are misappropriation of assets, improper expenditures and procurement fraud are as much internal as external and are a result of ineffective internal audit controls, collusion between employees and third parties, disgruntled employees/management and other external pressures.
"Many organizations within the region tend to consider fraud risk from an external perspective only where, for example, they might fall victim to schemes perpetrated by organized crime and third parties. The reality is that internal fraud is a significant risk too," said Simon Charlton, Middle East Managing Director, Forensic and Dispute Services, Deloitte Corporate Finance Limited.
Although two-thirds of the companies surveyed recognize that the economic downturn could increase fraud and hence, that they should enhance monitoring, some are under the false assurances that their internal audit systems are adequate whereas in natural fact, they are under-staffed and under-resourced, without the required skills and training.
"Although 75 percent of the companies surveyed have in-house Internal Audit resources, many of them are walking a dangerous tightrope," added Hani Khoury, partner, Enterprise Risk Services (ERS), Deloitte Middle East.
"Many senior executives within companies in the Middle East believe that Internal Audit is providing assurance in respect of financial fraud risk assessment, detection and investigation, and yet the reality is that Internal Audit is constrained substantially in its ability to deliver this broad remit."
It is expected that disgruntled employees and management will pose the greatest fraud risk in the coming months, especially with deteriorating social and economic conditions globally. The report cautions that businesses would be advised to keep vigilant in this area.
© Arab News 2011
