Fraud Risk Assessment – Identifying and Prioritizing Vulnerabilities

What is a Fraud Risk Assessment (FRA)?

A Fraud Risk Assessment is a structured process used to:

Identify potential fraud scenarios

Evaluate the likelihood and impact

Prioritize risks for mitigation

Strengthen the internal control environment

It's the foundation of every effective fraud prevention strategy—and often the first deliverable in a forensic or governance engagement.

Why FRA is Critical

Uncovers blind spots: Helps identify risks that standard audits may miss

Aligns with regulators: Supports SCA, CBUAE, AML and Corporate Tax compliance

Prepares for forensic readiness: Enables faster response when fraud is suspected

Supports audit committees: Provides transparency into residual fraud exposure

Key Steps in Conducting a Fraud Risk Assessment

1. Identify Risk Areas

Map high-risk areas by function:

Procurement & Vendor Management

Revenue Recognition & Cash Handling

Payroll & Expense Claims

Inventory Management

Intercompany Transactions

2. Define Fraud Scenarios

Develop realistic examples like:

Bribes to influence tender outcomes

Duplicate payments to fictitious vendors

Misappropriation of petty cash

3. Rate Risks

Score each scenario based on:

Likelihood (Low/Medium/High)

Impact (Financial, Regulatory, Reputational)

4. Evaluate Controls

Assess whether existing controls are:

Adequate

Designed properly

Operating effectively

5. Develop a Heat Map

Visually display risk levels and prioritize mitigation efforts.

Example FRA Table

UAE-Specific Relevance

AML & CTF Laws: FRA supports identification of red flags and suspicious activity

SCA Corporate Governance Code: Boards are responsible for assessing fraud risk

CBUAE & Insurance Regulations: Mandate risk assessments as part of internal control reviews

Corporate Tax Law: FRA helps identify tax-related fraud risks (e.g., transfer pricing, false deductions)

Best Practices for Effective FRA

1. Conduct workshops with cross-functional teams
2. Involve internal audit, compliance and finance leadership
3. Link each fraud scenario to financial reporting or operational impact
4. Update the FRA annually or when business structure changes
5. Align with COSO Fraud Risk Management Guide

How Crowe Supports Fraud Risk Assessments

We help organizations:

1. Facilitate interactive FRA workshops
2. Develop fraud risk registers and heat maps
3. Integrate FRA into enterprise risk management (ERM) frameworks
4. Link fraud risks to control frameworks (RCMs, SOPs, etc.)
5. Prepare FRA documentation for auditors, boards and regulators

Coming Next Week:

Next week, we’ll focus on Anti-Fraud Controls - from preventive measures like segregation of duties to detective tools like reconciliations and data analytics.