The Tamweel Company’s Internal Control Challenges

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Table of Contents

Company Introduction
Quality Issues at Tamweel Company
Lack of Internal Controls in Tamweel Company
Current Quality Management Strategies at Tamweel
Future Developments
Recommendations
Conclusion
Reference List

Company Introduction

Tamweel Company was introduced in 2004 and has grown to be the largest in Abu Dhabi real estate industry. It is a government-owned real estate firm. It is located in the Middle East. Currently, the institution has financed property worth over AED 10 billion. Tamweel offers services, especially in the real estate industry. It is one of the most active financiers of real estate development in the UAE.

Specifically, Tamweel Company specializes in financing investment projects following the Islamic Sharia. Among the finance models, it adopts include the Ijara. Ijara is a contractual agreement in which Tamweel purchases an asset from the owner for a defined amount as demanded by the client. Later, this property is rented to the same client on a periodic lease agreement. On the other hand, Murabaha is another finance model practiced by the company. In this model, the company enters into a contract with a client following a mutual agreement based on the promise made by the client to honor the pledge. Also, the Istisna’a finance model operates on an agreement with the client in which the company erects a premise in line with the particulars defined in the requirement blueprint, which automatically becomes valuable upon completion as per the set deadline. Besides financing property development, the company deals in brokerage, among other activities. The company also participates in staff assistance programs that are aimed at instilling moral suasion in business. It serves as a subsidiary of Dubai Islamic Bank. The company has four branches across the United Arabs Emirate. Currently, Tamweel only controls forty percent of ownership, which is opened to foreign trade. As part of its policy, this institution specializes in customer-based vi’s-à-is in line with the Islamic Sharia provisions.

Quality Issues at Tamweel Company

Fraud is very common in financial companies all over the world UAE companies included, even in the best of financial times, fraud due to lack of internal control in companies is still reported. This problem grows substantially in times of financial recession (Johnson, Scholes & Whittington, 2006). For diverse reasons, financial companies like Tamweel often have weaker internal controls than other industries. This is alarming because the best financial companies like Tamweel are at great risk; they might lose up to or greater than 5% of their annual income to fraud. Due to fraud, companies in the United Arabs Emirate have lost large sums of money due to misappropriation, lack of accountability, and inadequate support systems that monitor progress and use of company resources.

However, fraud is not the only reason for financial companies to adopt strict formal internal controls. Internal control assists in making transactions and business processes more efficient, and it improves accounting functions (Escrig-Tena et al. 2011). Reflectively, an efficient and systematic accounting system, acts as a shield against misappropriation and monitors the same. In the financial industry, internal control is necessary due to the diversity of financial services offered by the companies, as already discussed in the background to Tamweel. This company offers over 15 different services. The services are also scattered in various construction sites, real estate development sites, property, and rental housing locations.

This diversity makes bookkeeping vulnerable in this company due to the lack of sufficient personnel to handle every particular hitch in bookkeeping. The vast number of customers served by this company is also a need for internal control. Finally, the fact that committees in charge of the internal control do not act swiftly to deal with fraud and other internal corruptions as they occur, correcting and identification of negative issues concerning internal control tends to be a great challenge to financial companies (Johnson, Scholes & Whittington, 2006). In an efficient control matrix, these aspects must operate simultaneously within the set guidelines that determine and create a scheme for control (Bowman, 2003). Unfortunately, the above scenario has not been the case.

Lack of Internal Controls in Tamweel Company

Internal control is a systematic measure that is instituted by an organization to maintain an efficient and cost-effective operation matrix. Further, internal controls aid in safeguarding assets and resources of an entity helps in deterring and detecting errors, fraud and theft, ensure the accuracy and completeness of its accounting data. Also, they produce reliable and timely financial and management information and ensure adherence to its policies and plans. Therefore, it is important to have effective internal controls within an organization to ensure efficiency (Bowman, 2003).

Besides, it is important for an institution to also have effective risk management. Management of risk is driven from the top down by those charged with the whole responsibility of managing the risks. Currently, the actual status of internal control in Tamweel is not certain; this is due to lack of latest published financial audit and statements, there is no properly formulated and carried out research on the internal control of this company, and, finally, there is various literature that suggests a lack of internal control of this company. Since the literature is speculative, implying that it lacks the backing of a conducted scientific research, aiming at establishing the lack of internal control, estimating its extent and finally, suggesting the preferred solution to the negative outcome, the lack of internal control in Tamweel still is a big set back to its public relation and financial performance.

Thevenot (2011) describes Tamweel as a company with unlimited financial operations, and this makes it prone to suffering from a lack of internal control (Thevenot, 2011). There have been a couple of claims of lack of internal control in this Saudi Financial hub. Even though there is a steady growth in Dubai’s business and financial companies, Tamweel faces a struggle with several internal corruption suggesting a lack of internal control. The magnitude of corruption is worrying and beyond negligence. Specifically, this suggests that the company has weak or unreliable internal control models or systems.

The irony in the fight against lack of internal control in the UAE comes with the fact that The Dubai Financial Authority (DFA) has no responsibility for any financial organization/company that fails or is not able to maintain its internal control. In response to the earlier sentiments by the whistleblowers, Tamweel, in 2009, outlined what they described as an effective risk management structure; this was reflected in Tamweel’s 2009 financial report.

Current Quality Management Strategies at Tamweel

The Tamweel Company’s corporate implementation strategy proposed by the management is to ensure long term operation. For the implementation of the strategy, the management is to balance both the short term and long term consideration towards decision making. Management that ensures long term obligations are fulfilled considers mostly the role played by resources invested in technology, continued innovations in the creation of new financial products, and conducting intensive researches in the market to identify fresh market niches. Customer satisfaction is the focal point of the company in attaining a competitive advantage in the market above other players. Specifically, operations systems are employed at the Tamweel Company to monitor and increase productivity at minimal error margins. This is possible because this model of the operation implementation strategy system allows for operations process competitiveness as it cut down unnecessary overhead costs from waste and under-utilization (Johnson, Scholes & Whittington 2006). Besides, it monitors the wrongful use of resources or misappropriation in a production segment since each process must be accounted for.

The use of internal control deficiency (ICD) is critical in disclosing mandated audits associated with an internal control problem. Complex operations are associated with firms that have unbalanced ICD since they are linked to unbalanced organizational change, risk in accounting, and inconsistency in monitoring enforcement actions. Tamweel Company has a strong system that can check the ICD. Thus, it has remained relatively invulnerable to financial misstatement and misappropriation of resources. Although fraud has remained a serious concern to the financial performance of Tamweel Company, controlled audit and management of financial performance have led balance between integrity and fraud through its ICD. According to Escrig-Tena et al. (2011):

Relative to non-disclosers, firms disclosing ICDs have more complex operations, recent organizational changes, greater accounting risk, and more auditor resignations and have fewer resources available for internal control. (Escrig-Tena et al. 2011, p. 25)

Tamweel Company has come up with a hard skill comprising of flexible, affordable, reliable financial support packaged for short term and long term options. Therefore, it can be customized by a user to suit his or her needs depending on the financial demand, role, and even position in the real estate industry. To attract potential clients, the marketing strategy narrows down to property developers and aspiring homeowners. This ensures that financial information is correctly reflected besides saving time, which is of the essence in property development and purchasing (Johnson, Scholes & Whittington 2006). These aspects have been implemented in a closed goal-oriented management plan.

Besides, earnings management and cash flows are important quality controls in discretionary accruals at Tamweel. Restatements of financial statements are necessary for determining predictability and the ability of the respective accruals to conservatively motivate efficiency in financial accountability. As a matter of fact, “contrasting explanations of accounting choices are often dichotomized in the literature into the ex-post opportunistic contracting hypothesis and ex-ante efficient contracting hypothesis” (Montgomery, 2009, p. 34) to create a unique set of accruals. Tamweel Company has strong earnings and a financial system monitoring system. As a result, it remains relatively invulnerable despite a series of fraud committed annually by employees and clients due to its cash flow management strategies.

Security measurement is vital in determining the dummy variable in financial reporting. Besides, the process determines the accuracy and authenticity of data reported as the litigation risk is balanced in a productive process. Companies lacking a well-designed construct reporting validity often find themselves victims of fraud. A financial reporting system needs to internalize dummy validity measurement for financial variables and accounts (Nanda, Evans and Aggrwal, 2010). Relying on the standard industry measure instituted by business laws may not be sufficient because the same is relatively poor and may not necessarily present the actual litigation prediction (Bowman, 2003).

Tamweel Company has supplementary measurement variables apart from what is instituted by the top management. Thus, monitoring fraud relies on managerial opportunism besides a well-organized system that quickly identifies sources of fraud and holding the relevant person or department responsible. Tamweel Company has corporate disclosure and system of litigation securities, which balance litigation risks associated with the fraud. Skinner and Kim assert that “these models typically include firm characteristics such as market capitalization, stock volatility, and stock turnover as well as, in some cases, industry dummies based on FPS” (Nanda, Evans, and Aggrwal, 2010, p. 450).

Differentiation in management science is necessary and ethical towards the monitoring authenticity of audit records. Auditing is vital towards managing and tracking the company’s financial performance over a period of time. These aspects assist the management to critically reflect on audit differentiation effects and pricing balance. This process is solely based upon the premise of informed prediction that is supported by evidence and accuracy in reporting the financial performance (Bowman, 2003). Tamweel Company has an evidence-based auditing unit that functions on a spatial audit market differentiation unit.

Future Developments

The information reporting system in the firm and corporate governance are related and cannot function independently. Therefore, anti-takeover laws should be instituted to champion for a flexible but exogenous mechanism of corporate governance for financial service companies. Through decreasing gathering information by private and biased means, full adoption of the anti-takeover laws in an ‘informativeness’ company financial statement will increase (Johnson, Scholes & Whittington, 2006). Specifically, this recommendation should be adopted by the management unit of the Tamweel Company to improve by reporting cases of fraud. Johnson, Scholes, and Whittington (2006) assert that:

When we further desegregate total accruals into their discretionary and nondiscretionary components according to the Jones model in the third column, we find that the increased ‘informativeness’ of earnings following the passage of the anti-takeover laws is attributable to the discretionary rather than the nondiscretionary component of accruals. (Johnson, Scholes & Whittington, 2006, p. 39)

Reflectively, Tamweel Company should adopt anti-takeover laws to promote the quality of financial reporting in an asymmetry information channel.

Lenient policies encourage fraud and poor accountability in financial management and the use of company resources. Thus, the lack of securities and systems to punish and monitor fraud may be associated with continuous fraud in many companies across the globe (Bowman, 2003). Tamweel is not left behind on this. In fact, almost five percent of their revenues disappear as a result of illegal under dealings and fraud in financial statements. Therefore, it is important for this company to embrace cooperation through rewarding staff that is consistent and honest. On the other hand, stringent fraud punishment policies should be reinstated as a remedy towards discouraging unethical monitory mismanagement and unaccountability. Through the adoption of voluntary disclosure, it is possible to enforce actions meant to monitor fraud (Montgomery, 2009).

The relationship between managerial incentives, performance, and system evaluation is vital in controlling fraud and inconsistencies in financial reporting. Establishment of relevant programs that facilitate motivation and management insight is essential in the fight of fraud. A properly constituted committee within the board of directors is important in monitoring and facilitating the implementation of incentive aspects and promoting accountability. Junior employees should be incorporated in these programs to encourage openness as they will feel motivated. Also, according to Nanda et al. (2010):

A larger board is less likely to intervene because of dysfunctional behavior, such as free-rider problems, thereby exacerbating the agency conflict. This is because organization performance is measured as the aggregate performance across multiple programs or objectives, as opposed to performance relative to a single residual claimant’s objective. (Nanda et al. 2010, p. 472)

Tamweel Company should adopt an inclusive system monitoring program consisting of incentives and participation by employees. As a result, the board or management unit entrusted with the implementation of these programs will have a clear picture and control of the response to questions of accountability. Reflectively, this formula is applicable to the Tamweel Company through verification of the audit unit responsible for financial reporting to create a credible commitment, which translates into audit verification as part of management forecast and voluntary disclosure. When successfully incorporated in the financial reporting system, cases of fraud are likely to decrease significantly (Bowman, 2003).

Litigation of securities is vital towards redeeming a company from financial disappointments. Through voluntary disclosure, a financial company is in a position to responsively introduce a simultaneous methodology of counterintuitive between litigation and disclosure. Tamweel Company should incorporate evidence-based counterintuitive as a remedy for fighting fraud and poor accountability. Besides, according to Thevenot (2011):

Defending enforcement actions diverts time and money that can be used in more productive activities and damages managers’ reputation and labor market prospects. (Thevenot, 2011, p. 380)

Thus, incorporation of this recommendation will facilitate fraud management and monitoring at Tamweel financial, especially when implemented as a policy.

Recommendations

To enhance the achievement of the same, the company needs to introduce different auditing policies, which in return will attract various types of control management, thus creating consistency and fear among employees who might be tempted to fraud it (Bowman, 2003). Consequently, managers will be required to maintain the monitoring and the success of the evaluation procedures and endeavors of the company. In line with the management principles, this recommends the proper scrutiny of various factors creating a direct or indirect impact on the economic trends and changes in the economy of the UAE. The products of Tamweel need to be integrated into the achievement of various organizational goals through the distribution processes to ensure that the products reach all designated customers without fraud.

Conclusion

Conclusively, the critical elements of an effective management implementation strategy include management commitment, employee involvement, workplace analysis, risks prevention and control, training for employees, efficiency in production, and operation. An effective management implementation strategy system must, therefore, include the evaluation procedure to help gauge its effectiveness and guide in the creation of measures to correct flaws in the system. When this is successfully assimilated into the latter, it is within desirable limits to roll out the integration procedure to include entire control and evaluation changes. Tamweel Company has a complex implementation and review strategies. However, its internal control strategy has not been efficient in managing internal fraud and irresponsible financial reporting. Special attention should be directed towards measuring compliance and consistency indicators, and matrixes of performance evaluation through the integration of a proactive, objective-oriented, and goal facilitated behavior audit.

Reference List

Bowman, S 2003, “Corporate restructuring: Reconfiguring the firm”, Strategic Management Journal, vol. 1, no. 4, pp. 5–14.

Escrig-Tena, A., Bou-Llusar, C., Beltran, M., and Roca-Puig, V 2011, “Modelling the Implications of Quality Management Elements on Strategic Flexibility”, Advances in Decision Sciences, vol. 1, no. 1, pp. 1-27.

Johnson, G., Scholes, K., & Whittington, R 2006, Exploring corporate strategy, Prentice Hall, Essex.

Montgomery, D 2009, Introduction to Statistical Quality Control, John Wiley & Sons, New York

Nanda, D., Evans, M., and Aggrwal, R 2010, “Nonprofit boards: Size, performance and managerial incentives.” Journal of Accounting and Economics, vol. 53, no. 2, pp. 466-487.

Thevenot, M 2011, “The factors affecting illegal insider trading in firms with violation of GAAP,” Journal of Accounting and Economics, vol. 53, no. 1, pp, 375-390

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