Internal Auditors' Activities to Prevent Fraud in the UAE Organizations

6 pages
1605 words
University of California, Santa Barbara
Type of paper: 
Research paper
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Abstract 3
Introduction 4
Research Objective 5
Research Questions 5
Literature Review 5
Methods used in detecting fraud 9
Computer-Aided Audit Tools 9
Asset Verifications 9
Use of Benford's Theorem 10
Methodology 10
Research Design 10
Data Collection 11
Participants and Sampling 11
Ethical Consideration 12
Results and Discussion 12
Conclusion 16
References 18
Appendix 20
Table 1: Fraud Prevalence and effects 20
Table 2: Auditors responsibilities 20
Table 3: Auditors activities to prevent fraud 20
Questionnaire 21


Research shows that most of the contemporary organizations are becoming havens of frauds. United Arab Emirates organizations are not exceptional. As a result, auditors and auditing agencies are facing pressures from governments to uncover the cases of fraud. As a consequence of the continuing threats that financial scams, money laundering, and corruption pose to corporations globally and those the UAE in particular, auditing firms and internal auditors are facing immense pressure and professional responsibility to identify, report and prevent frauds. The purpose of the research is to shows the responsibilities and scope of practice among the auditors as they attempt to detect frauds and propose different strategies to prevent their occurrence.


The majority of global firms are such that their auditing departments are responsible for the reporting, detecting, and preventing the occurrence of frauds, financial and transaction errors and illegal accounting activities. Fraud remains one of the leading controversial issues among the public, regulators, media, politicians and auditors globally (Riley & Rezaee, 2013). In United Arabs Emirates (UAE), fraud has been the recent topic of interest in the recent past due to the increasing number of companies facing closures as a result of it. In 2014, for instance, more that 25% of the organizations operating in the United Arabs Emirates market were victims of fraud as the economic crime research indicate (Halbouni, 2015).Furthermore, the survey by Price Waters Coopers (PWC) (2015) in UAE in 2014 show that UAE and other Middle East nations are the common victims of fraud as more than 37% of the respondents indicate their encounters of becoming victims of internal fraud. Due to the severity of the accounting rip-offs in the UAE, there have been some critics, politics, and debates on the probable parties to blame.

Halbornis (2016) research to investigate the responsible parties for preventing and detecting fraud in 2014 indicate that 16% of the frauds occur by chance, tip-offs are responsible for 22% of the frauds and the audit departments only identify and prevent up to 5% of the frauds. The report indicates that there is a problem of inefficacy during fraud detection and prevention due to the shortfall in fraud aversion programs which augment the issues hence perpetuating internal financial and accounting crimes. IIA Research Foundation (2017) concurs with the previous reports in the UAE saying that the increasing rates of frauds in UAE companies reflect the inefficiency of the auditing strategies in averting frauds. Therefore, Halbouni (2015) suggests that without the intervention of the auditors in UAE, frauds as economic crimes will still continue to become threats to UAEs small, medium and large organizations. Fraud is increasingly gaining attention in UAE as evident from the recent government intervention to establish new auditing firms to augment the present global companies operating in the region (Halborni, 2016). The auditing firms in UAE include D-grade and C-grade auditing firms whose number are in ranges of hundreds and approximately 20 B-grade audit organizations (Halbouni, 2015). Internal auditors are now required to strictly adhere to accounting ethical and professional codes to enhance their professional responsibility and corporate governance to avert the occurrence of financial frauds.

Research Objective

The study has a primary aim of investigating the extent to which internal auditors are responsible for preventing the discovery and prevention of financial issues, situations, and behaviors that can perpetuate fraud.

Research Questions

What is the difference between an auditor conducting an audit and an auditor dealing with fraud within the United Arab Emirates?

Do internal audit departments ensure the protection of United Arab Emirates organizations from fraud?

What are different methods each internal audit department use in detecting and preventing fraud inside the United Arab Emirates and outside?

Literature Review

Fraud results in tremendous losses to many enterprises around the globe. Fraud also creates unethical issues in the workplace. Since the losses have adverse implications for the operations of businesses, it is important that organization manage, control and monitor employee behaviors that can cause fraud. Fraud detection refers to the examination of the available facts which indicate the existence of fraud, and to counter them. Efficient detection occurs where there is an appropriate determination of the internal oversight mechanisms (Petrascua & Tieanu, 2014). Studies show that robust internal audit mechanisms are the most efficient means of preventing fraud hence organizations need to raise the level of awareness so as to implement efforts towards battling fraud. However, the way auditors make judgments on fraud issues vary from one accountant to the other hence posing challenges in the identification of fraud (The Institute of Internal Auditors, 2009). The development in fraud detection and management in the 1980s is such that the functions and responsibilities of the internal auditors are broad and well defined so as to provide a conventional approach through which they perform audits and identify flaws in the system. Also, the Auditing Standards Board through formal statements provides more powers to the accounts to be entirely responsible for fraud detection and prevention (Salem, 2012).

As evident from Dalal (2012) exploration of fraud detection in the 1990s and early 2000s, it is clear that fraud occurrence supersedes the capability of the auditors to detect and report the scams within organizations. The increment in fraud cases is such that Dalal (2012) indicate an index increase of about 40 percent since the year 1990 to date, resulting in the loss of public confidence in auditing accounting controls in many nations. Due to the challenges, there is need to implement new programs that are capable of uncovering current and future frauds (Kasim & Hanafi, 2012). Further research affirms the role of auditors in detecting fraud by emphasizing that it is the duty of the auditors to report to all the concerned parties any notable acts of dishonesty within the financial statements that compromise its credibility. Other researchers have divergent approaches towards the role of auditors in preventing fraud. Some believe that is the role of management to detect and prevent frauds within the organization, while others believe that auditors can only undertake audits depending on their cognitive skills and institutions levels of support (Halborni, 2016). Such sentiments are true considering that management plays a critical role towards the success of an audit process. For example, a non-corporative management will have a high tendency of compromising the internal audit processes resulting in frauds going undetected and later realize when excessive damage occur (Dalal, 2012). Internal auditors have significant roles to play in the detection of fraud. Currently, the examiners are more proactive in all their accounting and auditing operations hence earning themselves additional responsibility as they ideally form part of the management. Auditors formulate mechanisms that evaluate internal control and checks so as to bring about an internal ethical tone and employee discipline and reporting the progress to the management.

Organizations in the UAE give enough considerations to the need and importance for fraud management. At least 77 percent of the agencies in the state have either partly or wholly risk management procedures all with the aim of avoiding adversities resulting from frauds (Halborni, 2016). However, only 14 percent are considering implementing a formal program shortly towards the management of fraud risks. Internal audits are to praise for the high levels of risk management development having in mind that there is a direct relationship between the establishment of internal audit functions and the maturity of the fraud management programs. The existence of internal audit services helps businesses to achieve the interest necessary for improving risk management, governance, and controls. Internal auditors in most cases have the capability of detecting fraud symptoms early in the time since they are always present within the organization hence conversant of the firms control structures (Salem, 2012). They always assist in the prevention of fraud through continuous evaluations and examination of the internal oversight mechanisms. Besides, they work hand in hand with the management in determining effective measures towards countering fraud through the analysis of the organizations strengths and flaws and in the end provide sufficient consultative expertise.

Internal auditors in the UAE employ various approaches towards deterring fraud within their workplaces. They audit the fraud management controls using a measure such as awareness practices and the control environment that comprise of management and policies. They undertake continuous tests on conventional processes with the aim of detecting fraud (The Institute of Internal Auditors, 2009). The tests include checks on payrolls for nonexistent workers, checks on supplier invoices for overcharges and matching information providing by the vendors and that from the employees hence detecting fictitious suppliers. The other approach that has any scholars note to be productive is considering the risk of fraud as part of each audit exercise. The cumulative outcome provides a perspective for determining the effectiveness of the implementation of risk management programs within the organization (Salem, 2012). By participating in consultative assignments, the management can identify underlying fraud risks thus ascertaining the feasibility of the control mechanisms for a new business venture, and process reviews.

Although technology is the greatest source of fraud in the developing and developed states, its use by internal auditors in the UAE considerably help in the detection and prevention of fraudulent situations. Most organizations around the globe are adopting the use of information technology in achieving automatic control mechanisms that aid in preventing and detecting frauds (Petrascua & Tieanu, 2014). The technology allows organizations to shift from the periodic monitoring techniques to real-time approaches which offer the benefit of practically preventing fraud before from occurring. Due to the countrys vision of being a technological hub within the region,...

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