Fraud expected to rise, survey finds

DUBAI // Sixty per cent of businesses that participated in a new survey expect the level of corporate fraud in the GCC to rise in the next two years as the financial crisis deepens in the region. There were 2,179 instances of fraud reported last year with a declared loss totalling Dh418 million (US$114m), however the actual losses could reach billions of dollars each year, according to the auditing, tax and advisory services firm KPMG. "Extrapolate the declared numbers through companies and sectors and there is a likelihood the losses would be in billions," said Colin Lobo, a forensic services partner at KPMG. The GCC Fraud Survey 2008 found that two thirds of large businesses - those with more than 1,000 employees - were more prone to fraud incidents. As corporations based in the region struggled to access liquidity, there was an increasing risk of firms adopting "innovative accounting practices" to dress up financial statements they presented to banks, Mr Lobo said. "Financial services, real estate, construction and mortgages are the sectors more prone to frauds as the credit crisis worsens." The survey sampled 1,000 respondents from financial services, oil and gas, infrastructure and government, consumer and industrial and information and communication sectors. About 47 per cent of respondents said the most common form of fraud was cheque forgery, which accounts for 30 per cent of the declared value of regional fraudulent activities, while manipulation of financial statements and obtaining funds through misrepresentation accounted for 26 per cent and 18 per cent respectively. Over-riding and poor internal controls, collusion between employees and third parties, lack of accountability, poor hiring practices, and poor ethical culture were among the reasons for fraud, the survey found. The report added that one third of all fraud detected in the surveyed firms was exposed by"whistle-blowers", while 24 per cent was discovered through internal controls. About seven per cent was detected through investigations carried out by management, while 10 per was discovered after an internal audit review. The report comes at a time when Dubai's corporate sector is reeling from separate investigations into alleged financial corruption in both the public and private sectors. There have been a series of high-profile arrests which began with the detention of Zack Shahin, the former chief executive of property company Deyaar. Since then, employees from Dubai Islamic Bank, the country's largest Islamic lender, Islamic home financier Tamweel, a former executive of the government-controlled property developer Nakheel and property business Sama Dubai have also been under investigation. About 67 per cent of respondents in the survey believe that fraud is also prevalent in both the private and public sectors. According to Mr Lobo, more than Dh1.5bn is alleged to have been misappropriated in the UAE alone over the past 12 months. Aymen el Saheb, the head of operations at Drahem Financial Brokerage, based in Dubai, said the spotlight was on Dubai and that corporate governance would be the key if the emirate wanted to achieve its objectives of becoming a global financial hub. "It goes without saying transparency issues needed to be enforced," he said. "It is happening but I think it will be some time before we can reach the desired level." Robert Chandler, a forensic partner at KPMG, said there was enough legislation available to send corruption cases to court. "The Government has enough resources to handle the financial crimes," he said. The Dubai authorities could also acquire additional resources "if need be to investigate financial crimes". "We have assisted the attorney general's office in some of the cases," Mr Lobo said. However, he added that KPMG's forensic practice was not assisting the Dubai authorities in any of the continuing inquiries in the emirate. skhan@thenational.ae