Internal Audit in Retail Industry UAE
The retail and distribution sector faces an unexpected and rough landscape, as well as risks related in providing an adequate customer engagement across physical, internet, and social channels. Retailers are still adjusting to these and other variables that have resulted in the creation of new thought processes and strategies. Despite the fact that consumers are investing again after the pandemic, their behaviour has completely altered.
Internal audit (IA) is understandably concerned about the multiple risks, and the IA function will be responsible for ensuring that their businesses are safe. HLB HAMT professionals are eager to assist internal audit divisions in studying any of these issues in order to adopt new risks and find new possibilities.
The business industry has recently witnessed an unparalleled combination of several risks, many of which have produced, entangled, or aggravated the others. Let’s take a look at some of the most significant key risks in the retail and distribution sectors.
Key Risks in Retail & Distribution sectors
- General Internal Controls
Internal control risks have an effect on the overall performance and efficiency of internal controls and, consequently, on the company’s ability to fulfil its goals. Certain risks that need to be addressed are the absence of properly specified qualification standards with flaws in the division of responsibilities; insufficient standard operating procedures in different departments also make a big impact. A risk analysis that is sufficiently thorough and completed on a regular basis should influence internal control systems.
- Finance, Accounting & Reporting
Improper tracking of cash management and control practices, absence of an evaluation of daily purchases/validation of vendor comparative prices, slowdowns or factual errors in bank reconciliation statements, delays in books of accounts finalization, and insufficiency of backup documentation and many more are all finance-related issues that need to be addressed in the retail sector.
- Fixed Assets
The risk component of fixed assets is compounded by the lack of fixed asset registries, as well as insufficient asset movement regulations and gaps in asset warranty tracking. Any business must keep a record of fixed assets throughout their existence. A company with a high number of fixed assets must identify, monitor, record, and reconcile its assets, which is critical for asset management.
Inventory control is vital in the retail and distribution industries for maintaining accurate records and preventing fraudulent activities. Inventory management systems help to eliminate risks such as the failure to record inventory ageing, poor system controls, delays in completing frequent inventory counts and material receiving storage, failure of immediate follow-up activities, FIFO controls, and supervisory control, and finally, loose procedures in material transfer with inaccurate physical/system inventory records.
- Retail Operations
Owning a business of any kind has risks, and running a retail business is no exception. You can avoid many operational risks with a retail risk management strategy in place, such as inadequate internal controls on retail stock storage, security, staff tracking, and housekeeping practices, shortfalls in external protection measures, cash management, deposit controls, and non-adherence with staff grooming and presentation standards with poor display hygiene, merchandising, and detailing of products.
Many firms strive to make the UAE one of their key markets for their products in this fast-paced business environment. The marketing department is one of the most efficient operating structures accessible to trade companies. Poor marketing strategy, website administration and promotional budget monitoring, as well as a failure to measure ROI on advertising campaigns and market visits, deficiencies in advertising and marketing integration with a lack of due process in marketing vendor selection.
- Distribution / Trading
Adverse conditions and occurrences in the retail sector have wreaked issues on the distribution process across the area, exposing it to hazards such as inadequate customer paperwork and credit insurance coverage, insufficient management over projections for material and sales returns, absence of oversight with loopholes in administration of customer programmes, rewards, booking of sales, dispatches, and returns.
- IT Systems
The retail business has seen substantial transitions over the last decade, and it continues to adapt with the newest innovations in information technology. Technology will be the foundation that attracts new players to the sector, but it will also expose them to risks such as an absence of clearly documented and communicated IT policies, insufficiency of IT systems with flawed access controls, hacking and data loss, and shortfalls in workflows with no data protection controls and use of manual interfaces between multiple systems used (such as): POS systems, Finance and Accounting systems and HR & Payroll systems
- HR / Payroll / Administration
Managing HR/payroll activities in any company is a difficult process that necessitates a significant commitment of time and money. Companies can get into difficulties if they are not managed by qualified experts because of hazards including poor controls in employee management, lack of controls over HR visa documentation, inappropriate practices for employee entitlements, gaps in recruiting processes and procedures for promotions and salary calculation with design and implementation of training programmes that aren’t up to par.
Strategic procurement is an important aspect of the retail and distribution sector for any organization that wants to stay profitable. A well-developed procurement process immediately converts into enhanced company performance by focusing on eliminating risks such as a lack of control over price comparisons and purchase lead times, loopholes in purchase order processing, vendor selection, periodic monitoring, and agreements with third parties.
Internal Audit in Retail Industry: Conclusion
Considering the prevailing challenging business environment, it’s no surprise that many retailers are shifting their paradigm to characterize their major strategic activities. Internal audit practices face additional hurdles as a result of these initiatives and the significant changes being implemented. During moments of rapid transition, new and established risks tend to grow, creating new chances for fraudulent crimes.
The demands of internal auditing continue to rise in the context of the challenges currently happening. Internal audit functions must be flexible in all aspects of their audit methodology in order to respond to an evolving risk situation. HLB HAMT’s audit teams are efficient, time-bound, and audit procedures are also tailored to a virtual work environment.
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