In addition to the financial cost, fraud can cause irreparable reputational damage to an organisation, a leading forensic investigation consultant has warned.
While industry research indicates that companies in the region could be losing as much as 5 per cent a year in lost profit due to fraud, the actual cost is much higher, says HKA forensic accounting investigation consultant Majdi al-Madani.
“In the event of a fraud, no one is ever able to recover the full amount claimed,” says Al-Madani, who is a partner at risk mitigation and dispute resolution consultant HKA.
“Further, the affected party needs to bear the cost of hiring consultants, legal fees and, more importantly, the cost of damage to the company’s reputation.”
Based in Saudi Arabia, Al-Madani has acted as a forensic expert on several arbitrations relating to commercial damages and fraudulent financial reporting.
In an exclusive interview with MEED, the HKA partner says that companies in the region must take a more proactive approach to risk management to ensure that their internal controls are effective.
A company-wide fraud risk assessment or fraud audit can help reduce the risk of fraud and misconduct and help identify the risks unique to the business.
“We cannot prevent frauds completely,” says Al-Madani. “But with the right controls in place, it is possible to reduce the time taken to mitigate the threat and minimise the social and financial impact. This will be possible only if businesses act proactively and undergo regular forensic health checks and fraud audits.”
Companies in the region must take a more proactive approach to risk management to ensure that their internal controls are effective
Majdi al-Madani, HKA
Al-Madani says that fraud audits can also provide the management with a clearer picture of the effectiveness of their controls to detect and stop fraud.
In March 2022, the Paris-based Financial Action Task Force (FATF) put the UAE under increased monitoring, known externally as its grey list.
According to the FATF, when the FATF places a jurisdiction under increased monitoring, it means the country has committed to swiftly resolving the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.
The latest MEED-HKA Market Talk “Fighting Financial Crime” explores the damage that financial crimes can cause to a company’s revenue and reputation. It also discusses how forensic accounting is being used to support the regional drive for investment. HKA is a global consultancy in risk mitigation and dispute resolution.
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