Internal Audit for Real Estate Industries in UAE
The market for real estate businesses in the United Arab Emirates is constantly shifting, and the arrival of risks associated with property management, fraud can threaten a company’s financial performance. Disjointed activities, weak internal controls, insufficient process design implementation, reporting mistakes, and uneven financial reporting are among the issues that real estate organizations face.
To handle the numerous requirements and financial risks that come with distinct industries, new ways must be devised. HLB HAMT has a professional internal audit and risk advisory team providing real estate industry services to assist in managing risk and improving operational performance without restricting development opportunities.
Key risks in Real Estate Industry
- 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.
- Financial Reporting & Cash Management
Improper tracking of cash management and control practices, absence of 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.
Inventory control is vital in the real estate industry for maintaining accurate records and preventing fraudulent activities. Inventory management systems help to eliminate risks such as the failure to record inventory ageing, poor management processes, delays in completing frequent inventory counts and material receiving storage, failure of supervisory control, and finally, loose procedures in material transfer.
The United Arab Emirates’ real estate industry offers several opportunities for both existing companies and new entities. Dubai’s real estate market is on the rise, and investors should be wary of certain risk elements such as lack of adequate feasibility studies, investments currently regulated, insufficient purchase, liquidation, and exit plans.
- Fixed Assets
The risk component of fixed assets is compounded by the lack of fixed asset registries, control procedures for the addition of assets, 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.
Leasing a property is a serious financial choice, so proceed with caution. To guarantee you have the most updated information relevant to your locality and situation, we recommend seeking assistance from knowledgeable financial and property specialists. In Dubai’s property market, there are several success stories. However, there are some risks that you should be conscious of like disparities in property registration, brokerage contracts, leasing rental and security deposit collections, bad tenant practices with lax rules, insufficient leasing and subleasing processes for new leases, renewal and termination of current leases, and rental concessions.
- Facilities & Property Management
Managing own properties or third-party properties is increasingly becoming an important activity for many real estate developers. Property management offers an opportunity to maximize profits at relatively lowering expenditures, and minimal investments. Property management however is hampered by a number of key issues, including ineffective tracking and management of tenant complaints and relationship strategies. Similarly, the facilities management function should not suffer from a lack of responsive ticket management, asset coverage under PPM schedules, disparities in building inspection and reporting, and HSE compliance violations.
Real estate construction projects are fundamental to a country’s economic development. The construction industry, on the other hand, is experiencing significant capital losses as a result of a variety of constraints and stereotypes, including insufficient checking of project execution, deliveries, variation orders, and non-compliance reports, disparities in payment certification to developers, project insurance, project closure, handover, and commissioning, and an absence of adequate site inspections.
- Sales & Marketing
In recent years, the real estate industry has evolved. From media platforms to digital marketing, the opportunity to reach target markets has significantly increased, as have the risks associated with it, such as poor tracking of inbound leads, gaps in sales contract forms and weak sales reporting. Similarly, it is important to ensure a tight monitoring of marketing budgets, and a strong system to review and respond to social media feedback along with digital marketing campaigns.
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, gaps in recruiting processes and procedures for promotions and salary calculation with inappropriate practices for employee entitlements.
- IT systems
The real estate business has seen substantial transition 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 like insufficiency of IT systems with shortfalls in workflows with no data protection controls and use of manual interfaces between multiple systems used (such as) Property Management software, Finance and Accounting systems and HR & Payroll systems
- Procurement and Contracts
Strategic procurement is an important aspect of the real estate sector for any organization that wants to stay profitable. A well-developed procurement process immediately translates 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. Management of contracts including contractor identification, selection, performance evaluation as well as payment certification are crucial aspects that need to be well monitored.
Real Estate Internal Audit in UAE
Real Estate is one of the most significant industries in the UAE, and its attraction to investors has made it a market catalyst. The sheer complexity of development and construction services, coupled with the high funding costs, shortage of skilled resources, and high competitiveness with suppliers around the world, keeps exposing investors to a variety of risks that must be handled constructively to maximize the value of the company.
Our qualified auditors at HLB HAMT provide internal audits for real estate company and ensure that all departments within the organization work together efficiently and productively.
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