1 in 3 GCC firms affected by fraud

Respondents to the GCC fraud survey published today by Deloitte Corporate Finance maintain that 35 per cent of entities had experienced at least one fraudulent incident during the year, 14 per cent of which were valued at over $1m and half of these, 7 per cent, over $10m.

The online survey covered issues relating to the extent of fraud in the GCC, the impact of the global economic crisis and measures being taken to prevent, detect and respond to fraud, waste and abuse.

While financial losses were reported in the millions, the majority of establishments had spent less than $50,000 on response plans during the year, the survey revealed.

More than a third of the surveyed entities reported that the financial crisis had directly resulted in an increase in the likelihood of fraud. “Organisations that adapt to the economic conditions and the risks and challenges they bring about have the opportunity to adopt appropriate, effective and sensible solutions,” said Simon Charlton, Managing Director, Forensic and Dispute Services, Deloitte Corporate Finance.

“Ultimately, they will have a better chance at recovery, securing their future and ensuring that the Middle East is a paradigm of transparency and good governance,” he said. 

“A key question perhaps is did the crisis actually lead to an increase in the likelihood of fraud or just the uncovering of incidents that previously went undetected in the boom years?” Charlton added.

Survey respondents revealed that theft of physical assets and theft or misuse of information as the most common types of fraud and that fraudulent activity was most likely to take place within the operational parts of the business, information technology department and the procurement function.

According to the survey, 56 per cent of respondents considered internal processes and controls as the most effective methods to detect fraud related incidents. Seventy-three per cent of establishments surveyed confirmed that they had some form of framework in place to prevent and detect fraud in order to minimise fraud related losses. Most respondents identified the existence of multi anti-fraud controls within the organisation although they expressed concerns over the effectiveness of these controls.

Participants disclosed that a whistleblowing policy setting out the procedures for reporting fraud exists in only half the organisations surveyed, yet those who had a policy in place identified it as the most effective means to prevent and detect fraud. “Historically, internal and external tip-offs are major contributors to the discovery of fraud and corruption. It is a concern that only 50 per cent of respondents had whistleblower hotlines. In addition to providing an avenue for staff and others to report their suspicions, the fact that an organisation operates a hotline assists in defining its culture,” said David Clements, Director, Deloitte Forensic & Dispute Services, Deloitte Corporate Finance.

“While our results illustrate an increased exposure to fraud, they also show an improvement in corporate governance standards in the region. Overall, our results are encouraging and indicate that while organisations have experienced a recent increase in fraud related activity, they are focused on continually improving controls and implementing risk mitigation strategies,” said Humphry Hatton, Partner in Charge, Forensic & Dispute Services Emea Region and Deloitte Corporate Finance Middle East, CEO. 

Hatton concluded: “The increasing proactive focus on preventing fraud, waste and abuse from occurring is a move that is being encouraged, welcomed and supported as part of corporate growth in the region and will go a long way to increasing Middle Eastern companies’ competitiveness with their international equivalents. Also, as the region goes through political and economic change, there is an added impetus in some quarters for a move towards greater transparency and accountability.”