What is Fraud Risk Management (FRM) - And Why Every Organization Needs It
What is Fraud Risk?
Fraud is any intentional act to deceive or misappropriate an asset, distort records, or bypass controls for personal or organizational gain.
It includes:
- Asset misappropriation – Theft of cash, inventory, or resources
- Corruption – Bribery, kickbacks, abuse of authority
- Financial statement fraud – Inflating revenue, understating liabilities
According to the ACFE, organizations lose an average of 5% of annual revenues to fraud.
What is Fraud Risk Management (FRM)?
FRM is a structured approach to identifying, assessing, preventing, detecting, and responding to fraud risks—before they cause material or reputational damage.
It combines:
- Governance
- Internal controls
- Risk assessments
- Culture and ethics
- Investigative readiness
Why FRM Is Critical in the UAE Context
In the UAE, regulators are increasingly focused on anti-fraud measures as part of good governance:
- CBUAE mandates strong fraud prevention in financial institutions and insurers.
- SCA requires PJSCs to ensure fair, accurate reporting - where fraud prevention is implicit under ICFR.
- Federal AML Law (Law No. 20 of 2018) requires detection and escalation of suspicious activity.
- Corporate Tax Law (Decree-Law No. 47 of 2022) demands accurate reporting and documentation, making fraud risks in tax manipulation a growing focus.
Whether you’re a listed entity, family-owned business, or SME, FRM is fast becoming a compliance and investor trust issue.
The Core Objectives of FRM
- Prevent: Implement strong internal controls to eliminate opportunities
- Detect: Identify fraud signals through analytics, whistleblowers, and monitoring
- Respond: Have a structured protocol for forensic investigation and escalation
- Recover: Minimize financial damage, report to authorities, and implement corrective actions
Examples of Fraud in Practice
|
Type |
Example |
Impact |
|
Vendor Kickbacks |
Procurement staff receives bribes for awarding contracts |
Inflated pricing, reputational damage |
|
Inventory Theft |
Stock misappropriated by warehouse staff |
Financial loss, audit issues |
|
Revenue Overstatement |
Sales recorded in advance of delivery |
Distorted performance, investor deception |
|
Duplicate Payments |
Invoices paid multiple times due to system override |
Cash leakage, control failure |
As a forensic and risk advisory leader, we support organizations with:
- Fraud risk assessments (FRA) and fraud control reviews
- Designing and testing anti-fraud control frameworks
- Policy and SOP development covering fraud response
- Conducting forensic investigations and digital evidence analysis
- Whistleblower system design and case triage
Coming Next Week:
Next week, we explore the Fraud Triangle - a globally accepted model that explains why people commit fraud. Understanding pressure, opportunity, and rationalization is the first step in designing an effective anti-fraud strategy.
