Financial sector loses Sh1bn to techno-savvy criminals

Deloitte Forensic Services Director Robert Nyamu makes a presentation as Deloitte Financial Crime Advisory Services Director Marc Anley looks on during a media briefing at the company's Westlands offices on Wednesday October 30, 2013. PHOTO/ DIANA NGILA  NATION

In Summary

• Regionally, according to the Financial Crime Survey, the financial services industry lost more than Sh2.7 billion ($30 million) in the period.
• Last year the audit firm reported that banks alone lost Sh4.06 billion ($48.3 million) to fraud in the 18 months ended June 2012.
• Kenya and Tanzania, the survey found, have faith in the Anti-Money Laundering (AML) regulatory framework to combat financial crime.

Kenya’s financial services sector lost almost a billion shillings to fraud in the 18 months through June, a new survey has shown.

Released by Delloite Wednesday, the survey mainly focused on the banking, insurance, capital markets and real estate sectors, revealing their inability to contain technologically-savvy criminals.

Regionally, according to the Financial Crime Survey, the financial services industry lost more than Sh2.7 billion ($30 million) in the period.

However, Deloitte warned that the figures may be understated as most financial institutions remained tight-lipped about fraud figures in order to preserve their reputation.

“The prevalence and magnitude of fraud is on the rise. Technology is turning out to be a double-edged sword,” said Deloitte’s forensic director, Mr Robert Nyamu.

With the figures presented however, Mr Nyamu said Kenya accounted for 45 per cent of financial crime in the region due to its robust sector that makes it a soft target.

Cash theft accounted for 72 per cent of the financial crimes in Kenya with cheque fraud accounting for 44 per cent.

Real Time Gross Transfer System (RTGS) and Electronic Funds Transfer fraud stood at 40 per cent.

Ironically, the RTGS system was introduced to curb fraud in processing payments of more than Sh1 million.

Last year the audit firm reported that banks alone lost Sh4.06 billion ($48.3 million) to fraud in the 18 months ended June 2012.

But as opposed to last year’s survey which relied on the reported figures of 32 financial services firms, the new study relied on direct responses from the institutions on what they had lost and the way forward.

COLLUSION WITH EMPLOYEES

In what should worry the sector, the survey revealed that a majority of the financial crimes are perpetrated through collusion with employees, thereby compromising internal controls. Non-management personnel were cited as the biggest culprits.

“IT Savvy employees are prone to compromising systems to their advantage due to their understanding of internal mechanism,” said Mr Nyamu.

In Tanzania and Uganda, segregation of duties and job rotation is the widely used fraud-prevention mechanism, in addition to conducting due diligence on employees before recruitment.

A whopping 67 per cent of banks across the region were found to be lacking automated systems to report suspicious transactions while no insurance firm has any.

Kenya and Tanzania, the survey found, have faith in the Anti-Money Laundering (AML) regulatory framework to combat financial crime.

In Kenya, a process to migrate automated teller machines to a more secure technology is nearly complete as local banks move to tackle growing payment card fraud.

The Kenya Bankers’ Association last week said 96 per cent of all ATMs across the country have been upgraded to the Europay MasterCard and Visa (EMV) technology.