Deloitte Building in Nairobi. Data released by the consultancy firm shows that various banks in the region suffered heavy losses from fraud. Photo/File
What you need to know:
Kenyan banks were victims of more than half the Sh4.1 billion ($48.3 million) fraud that hit East African banks last year as technology made the crime easier.
A single bank in the economic bloc lost Sh2.72 billion ($32.1 million) to account for a third of the total fraud through data manipulation.
Numbers released by consultant firm, Deloitte, Tuesday showed that various banks in the region suffered as economic crimes shot up 14 per cent according to police statistics.
But Deloitte Forensic director Robert Nyamu said actual statistics are difficult to determine due to the numerous unreported fraud cases. He said incidence of fraud was significantly understated despite cutting across the financial industry, including the insurance sector.
The rise in economic crimes is not limited to East African as the surge is global. The consultant said that McAfee and Guardian Analytics have reported that in global financial services, this year alone cybercriminals have attempted to steal at least Sh6.375 billion ($75 million) from high-balance business and consumer bank accounts.
“We can see that the pervasiveness and magnitude of fraud is going up and this may be predominantly caused by the sophistication of fraud and how it is being managed,” he said.
A study conducted by the consulting firm shows that reported economic crimes rose to 3,036 last year from 2,662 in 2010 according to one of the East African countries’ police force.
Mr Nyamu said in 2010 the insurance industry in the region on average reported net claims of Sh37.49 billion ($441.1 million) out of which 30-40 per cent was feared to be fraudulent. Kenya has the largest financial sector in East Africa and its general insurance is particularly fraud- prone.
Deloitte, without disclosing the names of the eight banks that lost Sh4.1 billion, said fraudsters used key loggers, which are applications or devices that monitor users’ key strokes as they type, to steal from the biggest victim.
Malware, which is a type of code that includes viruses and Trojan horses, can also be used to pick up key strokes.
“There are a lot of chat and social media sites where fraudsters are sharng information on banks and organisations that are susceptible and easy to infiltrate,” said Flavio Palaci, director, Deloitte Advisory, Central Europe.
The second bank reported that illicit funds amounting to Sh1.1 billion ($13 million) was wired from Italy and was suspected to be proceeds of embezzlement, aggravated fraud committed against the State and money laundering. Another one was reported to have lost Sh93.1 million ($1.1million) through fraud.
At another lender, a branch manager conspired with two directors to transfer Sh39 million ($459,000) while yet another lost approximately Sh42.5 million ($500,000) through insider collusion, illegal money transfers from client accounts and other fraudulent means.
The sixth, seventh and eighth banks lost Sh29.75 million ($350,000), Sh17.51 million ($206,000) and Sh18.275 million ($215,000) respectively through electronic and other forms of computer fraud.
“As we innovate, fraudsters also innovate. Most banks are moving towards mobile banking and a lot of fraud is being perpetuated through that,” said Mr Nyamu adding that some was being done from other countries like Russia.
He said some organisations in the financial industry had inadequate fraud risk control structures, lack of anonymous reporting systems, casual or passive attitude to fraud, lack of disclosure which leads many institutions to prefer dealing with issues of fraud internally reducing the number of cases reported as contributing to a continued rise in cases of fraud.
Dorothy Maseke from UAP Insurance said even though the insurance industry was still lagging the banking sector, it had begun putting in measures to guard against fraud.
“We had to start with the structures and we are now looking for the solutions,” she said adding that in the past the general perception in the sector contributed to high cases of fraud.
Joseph Mathenge of Equity Bank said that the banking sector is run on trust and that the cost of making information on loss public is high although it is shared within the sector.
