DUBAI: Banks in the United Arab Emirates (UAE) are obtaining fake financial statements from some small and medium-sized business customers using the letterhead of a reputed auditing firm, according to industry executives.
The Ministry of Economy will issue a warning on the issue, which could affect banks if they fail to check, the official added.
“We only became aware of this scam recently, and the reason is that one of the banks that received these statements from one of their (prospective) customers was unable to find the numbers for accounts receivable, debt, revenue, etc. We decided to double check some of them directly with us,” said Raju Menon, Chairman and Group Managing Partner of Creston Menon CPAs.
“We have discovered that the financial reports submitted were not prepared by any of our offices. The problem is serious and we hope that there will not be many cases like this.”
He added that the company has approached the Ministry of Economy and is also planning to file a complaint with the police.
Banking and auditing industry officials acknowledged that they were conducting internal checks to determine if any false filings had been leaked.
Forged credentials
This financial information appears to have been compiled by independent auditors, but what is frustrating is that they use the credentials of a major domestic auditing firm as cover for their work. What’s interesting is that the companies that appear to be targeted are audit firms other than the “Big Four” companies.
For companies that use independent auditors to prepare their books, it can be costly when compared to the fees they would have to pay a top-tier audit firm.
“Also, some of the financial details, such as the size of receivables, may be inflated, and some figures, such as debt, may be downplayed,” Menon said.
More than that, what’s at stake here is the risk factor for banks. Some of the documents submitted using these false credentials clearly have some degree of sophistication.
“Only one bank called us to verify the number they received,” Menon said. “These statements also have fake signatures attached to them, which shows the scale of the maraf activities.”
Not related to corporate tax return
Industry insiders added that filing such false reports has nothing to do with UAE companies, which in some cases are required to register or prepare corporate tax returns.
“It was purely by chance that the bank contacted us to confirm the veracity of the numbers they received,” Raju Menon said. “For the first time, we have discovered that financial statements have been issued using our name.” Image credit: Supplied
Under UAE corporate tax rules, only companies with revenues of AED 50 million or more are required to submit fully audited reports.
“These fake applications to banks are more about getting services from that financial institution,” Menon said. “We believe these are not isolated cases. We have received similar feedback from other companies.”
put an end to the problem
Banks will need to strengthen their defenses against fraudulent submissions, but another option could be to assign a unique document identification number.
“In India, UDIN is a system-generated 18-digit unique number assigned to every document authenticated or attested by a chartered accountant,” said an industry official. “This mechanism ensures that the authenticity of each document is verified, increasing the reliability of financial reporting.
“Introducing similar mechanisms would not only deter fraud, but also strengthen confidence in the authenticity of the reports banks rely on.”