Employee frauds a big challenge for UAE firms
Nation's transparency strong, but work needs to be done to boost it to international level
Employee frauds continue to be a major challenge for companies in the UAE with the banking sector witnessing increased incidents of employee frauds, expert said on Saturday.
Badri Vishal Mahajan, director at Mayur Batra Group, said frauds are largely now being noticed in banks because the economy goes into a maturity level where people are not getting increments that they used to receive and that brings in rationalisation for committing frauds.
"Also, there are opportunities and motivations too because a lot of companies don't have a control system in place. So when the rationalisation comes in with people not getting salaries and businesses being slow, these frauds happen," Mahajan said on the sidelines of a technical seminar hosted by the Institute of Chartered Accountants of India (ICAI) - Dubai Chapter on financial crimes, corporate governance and forensic audit.
He pointed out that frauds have not really increased but discovery has improved.
"People are always smart when it comes to fraud but with a lot of new technologies coming in, the way frauds are being done have become different. There is a concept of cash larceny where people - whatever comes into books as cash - they take it out, and this is the simplest way of doing frauds. With audit controls and procedures in place, it is very difficult to commit financial crime now, so the way the mechanism of fraud was done in the past has changed."
"The detection rate has improved but I would not certainly say that the fraud rate has decreased. Frauds happen as a result of a triangle of pressure, incentive and opportunity. If I have pressure from family to earn more, then I see an opportunity that the organisation doesn't have a system in place, and then rationalisation is the third part to justify our conscience that the organisation is not paying well," he added.
UAE best in Mena
Mahajan emphasised that the UAE has a lot more transparent and better systems in place compared to other countries in the region that are lagging in transparency and the KYC (know your customer) concept, among others.
"If KYC is not there, I can easily take the money and run away with that. So those systems and processes are lagging in the Middle East, and that's why I feel the detection system is not as high in the Middle East, so we can't rule out frauds in the first place. Since the Mena is not very regulated in terms of rules and procedures, there is definitely an exposure in all those countries. But the UAE has, by far, more transparency in processes so fraud detection is a lot easier in the UAE compared to other countries. Regionally, we get to know not how much frauds are detected but how much are the frauds that are not discovered," he said during an interview on the sidelines of the event.
Hassan Nasser, director for compliance, risk and training at Crowe UAE, said the UAE has one of the best systems in place in the Mena region for transparency and fraud detection but there is a need to do more to match the global level.
"At the Mena level, the UAE is doing well in terms of transparency. The system is strong here but we need to top it up to the international level," he said. Nasser said there is more due diligence now than before but there is not much transparency as the statistics on the number of crimes committed, detected and the number of people convicted are not reported regularly in the Mena.
"Each country should disclose statistics about crime. there is a need for more transparency from governments. With more transparency, you can fight better against money laundering and so on and can also know how well you're fighting against this crime," Nasser said.
He pointed out that in addition to money laundering, corruption and bribery are the major frauds committed in the region, especially in banks.
Nasser noted that people mix up money earned through legal and illegal means to reflect that it is generated through legal sources.
Naveen Sharma, chairman of the ICAI - Dubai Chapter, pointed out that the importance of corporate governance has increased manifold and forensic audit has become mainstream.
"Risk cannot be eliminated, but it can only be managed. Managing the risk in a smart way is the need of the hour," he said during the opening remarks.
In addition, Amarjit Chopra, former president of the ICAI; and Chetan Dalal, founder and CEO of Chetan Dalal Investigation and Management Services, also addressed the conference.
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