The retail and distribution sector in the UAE faces significant challenges and risks related to customer engagement and operational efficiencies. Internal audits are critical for identifying and addressing various risks, including internal controls, finance management, inventory control, and procurement processes. HLB Hamt emphasizes the need for adaptable internal audit practices in response to the evolving and complex risk landscape following recent market changes.

1. Internal Audit in
Retail Industry UAE
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2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. Inventory
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.

8. 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.

9. Marketing
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.

10. 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.

11. 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

12. 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.

13. Procurement
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.

14. 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.

15. Contact Us
HLB HAMT
Level 18, City Tower-2,
Sheikh Zayed Road
PO Box 32665
Dubai – United Arab Emirates.
Tel: +971 4 327 7775
E-mail: dubai@hlbhamt.com
www.hlbhamt.com