EDITORIAL: Firms must scale up efforts to tame customer fraud

PricewaterhouseCoopers advisory partner Muniu Thoithi
PricewaterhouseCoopers advisory partner Muniu Thoithi (left) and head of regulatory, compliance and advisory Joseph Githaiga during the release of PwC's 2018 Global Economic Crime and Fraud Survey on February 27, 2018. PHOTO | SALATON NJAU | NMG 

That customers have risen to stand among the biggest threats to Kenyan firms is a not surprising but a rather puzzling finding for managers and business owners.

PricewaterhouseCoopers (PwC), a global consultancy, says in its latest report on economic crimes that customer fraud constitutes the second biggest source of losses after internal asset misappropriation or fraud and theft.

The threat comes in the form of shoplifting, failure to pay for goods supplied, making the customer a real force to reckon with in terms of business risk management.

But while most organisations are familiar with asset misappropriation by insiders, many are still in the dark about tackling customer fraud -- hence the big focus on the issue.

The report has singled out financial institutions such as insurers and banks as the most affected by the customer-driven risk, especially in situations where there is collusion with insiders.

Cases of customers making fake insurance claims or borrowers taking unsecured or poorly secured loans then disappearing into thin air are common in the financial sector. Many other entities experience similar losses.

Part of preventive mechanisms that institutions can put in place in response to this risk is to know customers well.

We agree with the report where it recommends that companies should do risk profiling of customers. This requires every business to identify blind spots in the oversight of own operations putting in place customer acceptance procedures.

For instance, customers who have the propensity to make special requests that involve bypassing an organisation’s protocols may be considered to be of high risk than those who fully comply with existing procedures.

Information and communication technology is another tools in the hands of business to detect customer fraud.

Artificial intelligence tools such as speech recognition and machine learning software can help arrest economic crimes by establishing behaviour patterns and the types of transactions that are normal and those that are not. But organisations must go beyond machines and software to also focus on people.

There is a need for continuous and proactive monitoring and analysis of a company’s systems, including transactions and communications for possible anomalies to curb emerging fraud.