Fraudsters steal Sh3.8bn from banks, insurer

Deloitte East Africa’s forensic services director Robert Nyamu makes a presentation during a media briefing in Nairobi October 30, 2013. Looking on is Marc Anley, Deloitte South Africa’s financial crime advisory services director. Photo/Diana Ngila  Nation Media Group

By Herbling David

In Summary

• The report by consulting firm Deloitte indicates that electronic and digital transactions have become the bedrock of financial crimes that is fuelled by staff through circumvention of internal controls to steal clients’ money.
• This means that the financial services firms lose an average of Sh300 million every month through identity theft, cheque tampering, credit card fraud and electronic funds transfers and fraudulent insurance claims.
• The Deloitte survey calls on banks and insurance firms to invest in robust technology and human resource to mitigate the impact of financial crimes and safeguard customer deposits and shareholder value.

Kenyan banks and insurance companies lost about Sh3.8 billion in fraudulent transactions last year or nearly half of what was stolen from financial institutions in East Africa, a newly published report says.

The report by consulting firm Deloitte indicates that electronic and digital transactions have become the bedrock of financial crimes that is fuelled by staff through circumvention of internal controls to steal clients’ money.

Deloitte said that financial institutions in Kenya, Uganda and Tanzania only declared Sh2.5 billion as money they lost to fraudsters last year or a third of the Sh7.6 billion they are estimated to have actually lost.

Robert Nyamu, the forensic services director at Deloitte East Africa, said actual fraud statistics are difficult to come by as most companies do not make such disclosures public to safeguard their reputation.

“Kenyan banks are heavily automated in terms of operations hence the increased sophistication of fraud by senior management and IT staff who have knowledge of and access to such systems,” said Mr Nyamu.

“These figures are likely to be significantly understated given that the majority of financial institutions opt not to report financial crimes, which may have a bearing on the perception of their prevalence and impact on the industry.”

The Sh3.8 billion lost through fraud represents 4.2 per cent of the Sh88.6 billion Kenyan banks made in profits for the nine months ended September this year.

This means that the financial services firms lose an average of Sh300 million every month through identity theft, cheque tampering, credit card fraud and electronic funds transfers and fraudulent insurance claims.

All financial institutions, including banks, insurance companies and Saccos, are required to report crimes such as money laundering to the Financial Reporting Centre (FRC).

Data from the Banking Fraud Investigations Department (BFID) shows that financial institutions reported Sh1.49 billion as having been stolen from customers’ accounts between April 2012 and April 2013.

But investigators only managed to recover Sh530 million or a third of the loot, highlighting the complexity of the crime.

The Financial Crime Survey Report 2013 says that most firms prefer to keep fraud cases under wraps because the resultant reputational damage far outweighs the actual financial losses.

Safaricom recently broke ranks with industry trends with the announcement that it had sacked 33 employees over fraudulent transactions in the year to March, highlighting the rising tide of economic crime in corporate Kenya.

READ: Safaricom sacks 33 workers over theft and bribery

The listed telecom firm is also the operator of Kenya’s top mobile money service, M-Pesa with more 20 million users. Eight banks across East Africa lost Sh4.1 billion in the year 2011, as fraudsters adopted hi-tech schemes to steal from unsuspecting clients.