Regional financial institutions lose Sh2.5B to fraud – report

October 30, 2013
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Financial institutions across East Africa are perceived to have lost $30million (Sh2.55billion) in the last one year to financial crime

This is according to findings contained in the Deloitte Financial Crime Survey 2013 which asked banks, insurance firms, real estate companies and the capital markets across East Africa to state what they felt they lost to fraud and other crimes.

“These figures are likely to be significantly understated given that a majority of players in the financial services industry opt not to report incidences of financial crimes, which may have a bearing on the perception of their prevalence and impact in the industry,” said Robert Nyamu, Director, Deloitte Forensic Services, East Africa

“Coincidentally, across the region, the greatest impacts of financial crimes are perceived to be reputational damage and actual financial losses.”

The most prevalent forms of financial crime across East Africa are cash theft, cheque fraud and asset misappropriation at varying levels across the three countries, which is a reflection of differing degrees of complexity and maturity of the financial services industry in each country.

Nearly 70 percent of the financial crimes committed in East Africa last year were through cash theft.

Cheque fraud was highest in Uganda—where it accounted for half of the financial crimes, followed closely by Kenya.

On average, a third of financial crimes across East Africa were in the form of asset misappropriation.

Execution of financial crimes in East Africa commonly involves a combination of internal and external parties through collusion, which has perpetually proven to be effective at compromising internal controls.

Non-management personnel are perceived to be the biggest culprits of financial crimes

“The most commonly used prevention mechanisms for mitigating financial crimes are segregation of duties and job rotation, while the most commonly used detection mechanism across the region is risk based internal audits,” said Mark Anley, Director, Deloitte Financial Crime Advisory Services, South Africa.

The majority in Kenya and Tanzania perceive the internal audit team and senior management as the most responsible parties with respect to dealing with financial crimes, while in Uganda this responsibility is perceived to rest with the risk and compliance teams and senior management.

Gallant efforts have been made by financial services industry across East Africa.

“These efforts notwithstanding, both the magnitude and pervasiveness of financial crimes have progressively increased” said Nyamu.

“We believe that this can be attributed to a mismatch between the level of sophistication of the financial crimes and the tools and techniques being deployed by the Industry players to contain these vices”

As opposed to last year’s report which analyzed reported figures, this year’s survey—in which 32 companies stated—depended on the responses of the institutions on what they felt or perceived were the amounts they lost to financial crime and the best way to curb the vice.

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