Customer fraud is new threat to Kenyan firms

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 

Client-driven fraud has risen to rank among the leading threats to the modern corporation, according to a newly-released global economic crimes report.

PricewaterhouseCoopers (PwC) says in the report that up to 37 per cent of Kenyan firms suffered client-led fraud in the past couple of years, placing customers among the biggest economic threats to business.

PwC says financial services have been the biggest victims of customer fraud with incidence rates of 65 per cent for banks and 71 per cent for insurers.

“There is an increase in fraud committed by external partners like agents and shared services providers, but the customer was found to be committing most of the crimes,” said Muniu Thoithi, PwC’s forensics lead for East Africa.

“While the customer remains an important stakeholder for any business, it has become critical for organisations to interrogate their interactions with them in order to secure their interests,” he said.


The findings have upended the widely held belief that customers are the lifeblood of a business, that every organisation must deal with hand in gloves.

Insurance fraud

In the insurance sector, for instance, businesses have for years been falling prey to fraudulent customers who lodge illegitimate claims or inflated claims that are designed to appear legitimate.

A huge chunk of private car owners go as far as writing off their older vehicles to get new ones or exaggerate repair costs to include wear and tear.

Efforts to fight medical insurance cons have even forced many insurers to hire doctors.

Failure to pay public utilities or for goods delivered, shoplifting, collusion with internal parties and cybercrime are some of the “myriad ways” through which customers are fleecing organisations, PwC says, adding that organisations must examine the full profile of prospective customers, including criminal history, type of activities undertaken, any ethical or legal non-compliance history before entering into legally binding relationships with them.

Internal fraud, however, remains Kenya’s most prevalent economic crime with 48 per cent of the 116 Kenyan respondents -- board members and senior managers -- indicating that they had experienced it since 2016.

Procurement fraud ranked third with 34 per cent incidence rate; bribery and corruption fourth with 30 per cent prevalence while cybercrime was fifth at 28 per cent.

Three-quarters of the respondents said they had experienced at least one form of economic crime in the past two years, an increase from 23 per cent in 2016 -- higher than the global average (49 per cent) and African average (62 per cent).


A fifth of the respondents reported having suffered a direct loss of between Sh10 million and Sh100 million since 2016.

A further two per cent reported having lost over Sh500 million – demonstrating the magnitude of the problem. Internal fraud, which PwC classifies as asset misappropriation, while still the most prevalent economic crime locally, registered a drop from 2016’s 72 per cent.

Fraud, perpetrated by owners and employees of a business, still remain a big risk whose decline has been attributed to inclusion of customer fraud as a new category this year.

Introduction of laws governing public sector procurement are believed to have resulted in the prevalence rate dropping eight percentage points to 34 per cent.

However, procurement transgressions in the private sector remain largely unprosecuted by the firm’s management. Bribery and corruption has largely been seen as Kenya’s Achilles’ heel.

Cybersecurity gap

The PwC report shows that at 30 per cent, Kenya is at par with its neighbours Tanzania, Uganda, Rwanda and Zambia. Cybercrime was flagged as an economic risk that will pose the biggest threat to Kenyan businesses over the next two years, especially since 41 per cent of businesses surveyed said they lack an operational cybersecurity programme.

To curb external fraud, PwC recommends that companies invest in systems (such as artificial intelligence tools) that can flag vulnerabilities or anomalies and keep up with trends.

Risk profiling, including beefing up know-your-customer protocols, are also key.

Companies looking to curb internal fraud must create an environment where employees’ financial and physiological wellbeing is a priority as well as enforce policies to ensure enticing opportunities for theft are shut.

PWC also urges companies to build open corporate cultures that facilitate tip-offs and whistleblowing as sure ways of dealing with fraud.

“It is encouraging to note that as compared to the 2016 results, more organisations reported having carried out fraud risk assessment,” PwC said in the report.