ME firms see bigger fraud risk over next 2 years: Deloitte

More than two-thirds of the respondents to a survey in the Middle East felt that the current business and economic disruptions could increase fraud risk in their organisations over the next two years, said an industry expert.

“When the findings were compared to a similar survey conducted by Deloitte Middle East in 2010, there has been a change in the most prevalent types of fraud over the last decade,” added Collin Keeney, Partner, Financial Advisory, Deloitte Middle East, commenting on Deloitte’s new Middle East Fraud Survey report, which illustrates how organisations across the region have been affected by fraud during the Covid-19 pandemic.

“Theft of physical assets and misuse of information were the most pressing concerns in 2010 compared to the threat of new age technology fraud such as cyber-crime and financial misreporting today,” he added.

Over 100 anonymous respondents from a wide spectrum of industries in both the public and private sector participated in the digital questionnaire. The Deloitte survey explores the extent and various types of fraud, the impact of the global pandemic on fraud risks due to changes in the business environment and measures being taken to prevent, detect and respond to fraud.

Key report highlights:

• The survey indicates that 48% of participants have witnessed more fraudulent incidents this year compared to earlier years, and 35% felt it has increased since the start of the COVID-19 pandemic. The top factors in the current business environment contributing to fraud were identified as dependency on technology and remote working.

• Responses indicate that proactive awareness campaigns and training for employees on emerging fraud risks resulted in reduction of fraud. However, more than 50% of respondents highlighted that there is a limited understanding of emerging fraud risks in their organisations. These organisations often place reliance on traditional techniques, static data, and irregular modification of a framework.

• 55% of the respondents have a basic policy level fraud risk framework such as anti-fraud, code of conduct and anti-bribery and corruption policies. Though they lacked other necessary elements such as periodic training, senior management reporting, periodic fraud risk assessment and dedicated anti-fraud technologies.

• 41% of the companies do not have a dedicated fraud risk management and investigation team and feel that the current fraud risk framework is not adequate to prevent and mitigate the risk of future fraud. Furthermore, the respondents are not aware of risks pertaining to their industry and the best practices to be followed.

• While there is a concern about the lack of fraud management preparedness across organisations, there has been instances where internal and external collaborations have driven and enhanced the effectiveness of organisations’ fraud risk management efforts.

“Having the benefit of a 10-year comparison, we have identified insightful observations on fraud risk maturity trends. What we can see is a broad increase in the baseline readiness of organisations in the region,” Keeny said.

“Significantly more organisations report having put in place the key components such as developing fraud management policies, whistleblower hotlines, and conducting fraud risk assessments. However, quite a number of respondents report a certain ambivalence in the effectiveness of these baseline efforts.

“Contrast this with the satisfaction reported by organisations who have made investments into vanguard areas like anti-fraud technology and you reach a key take-away: the efficacy of baseline efforts is negligible if they are only done on paper and not followed up with further action.

The real effectiveness gains are experienced when the organisation moves beyond the paper, into detailed controls testing, revision and enhancement of controls, follow-up with audits and then into more proactive, ongoing monitoring of fraud risks,” he concluded.