Fraud, fraud, everywhere
The numbers are out: Fraud is rife in the GCC. And with the financial crisis threatening to ruin businesses, it’s likely to get worse
October 27, 2008 2:02 by kippreport
Only weeks before the GCC’s stock markets began to fall and the price of oil tumbled, corporations in the GCC were talking about improving their corporate governance. Companies in Dubai and Abu Dhabi pledged their time and resources to becoming more transparent and implementing better governance strategies to promote accountability. Today, no one’s talking about corporate governance.
GCC-residents are far too concerned about their immediate future, their jobs, their bank accounts and their loans to worry about how clean companies’ books are and who’s accountable for what. But as the financial crisis continues to destroy the region’s ‘save haven’ façade, questions have been raised about the level of fraud in GCC companies.
Now, more than ever, tackling fraud is essential to the survival of the region’s business and finance communities. Without help from banks and foreign investors, regional companies are left to their own devices to ensure their survival (unless, that is, GCC governments step in with a generous bail out plan) and to restore investors’ confidence in their corporations.
KPMG, an international audit and advisory firm, published its latest GCC Fraud survey (2008), and the findings aren’t reassuring. According to the survey, 60 percent of respondents believe that fraud will increase in the GCC over the next two years. Colin Lobo, partner forensic services at KPMG explains: “The current financial crisis that the world is experiencing is creating an environment where the risk of fraud will increase as businesses come under pressure to show results. Likewise, individuals will also be tempted where costs are rising and income levels are flat.”
To compound an already uncomfortable situation, the survey also found that “organizations in the region appear to have varying levels of understanding as regards the optimal framework for fraud management strategies,” said Robert Chandler, another partner forensic services at KPMG.
Bearing in mind that KPMG ‘s 2007 GCC Fraud survey found that fraud has more than doubled since 2004, the prognosis disheartening.
For the time being, GCC-residents will have to contend with a period of uncertainty. Whether companies fall, economies slow down and the markets tumble is difficult to tell. But when all this passes, perhaps heads of companies will return to talks about improving their corporate governance…with special focus on risk fraud management.