Top managers in east Africa responsible for fraud increase

This is one of the findings by Deloitte Forensic Services in a report titled Financial Crimes Survey 2013, Where is the Exposure? released early November. Robert Nyamu, Director for Deloitte Forensic Services in east Africa, said much theft in the two sectors is through cash. “Theft is perpetuated because those involved know that the cash is insured hence giving them the leeway to perpetuate the theft,” said Mr Nyamu. The report found east African banks, insurance companies, the capital markets and real estate companies lost a massive US$30m to fraudsters between October 2012 and October 2013.hideKenya accounted for 45 per cent of this loss. Other focus countries were Uganda and Tanzania. The report revealed that top management, which includes chief executive officers, chief operating officers, financial chiefs and heads of departments, are the most responsible parties in committing economic crimes compared to mid-level management and low-cadre employees. “They have a more sophisticated way of committing crimes and they can ably cover them up,” said Mr Nyamu. Christopher Mulwenga, of Continental Insurance Brokers in Uganda, said the findings that senior management is most responsible for facilitating fraud is worrying. “These are the people who can undertake the most serious fraud in a company because they have the mandate and the secrets compared to mid-level or junior employees. This therefore means the risk profile of fraud in corporates in the region just got higher,” he said. It remains to be seen how insurance companies in east Africa will respond to these findings, especially regarding the cost of indemnity cover for senior management. The Deloitte findings have also been corroborated by Kenya’s Banking Fraud Investigations Department (BFID), which revealed companies, and especially banks, are afraid to report fraud perpetuated by their own senior employees because of reputation risk. The assessment in the financial sector, said Mr Nyamu, is that reporting such cases and letting them filter to the public will mean a negative reputation, which will slow winning new customers and withdraw of existing ones. “The losses arising from negative reputation are in some instances seen as higher than reporting the crime by the affected banks,” he said. This lack of reporting has also been cited as a motivator to crime as the perpetuators know they will not be exposed to the public and lack of a legal process to recover the money means they can keep whatever they take. Deloitte noted that the lost money is 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 report found that about 70 per cent of the financial crimes committed in east Africa last year were through cash theft, followed by cheque fraud. Despite these losses, the report found 67 per cent of banks and insurance companies do not have automated systems to monitor and report suspicious transactions, the worst being in the insurance industry where no company was found to have systems to monitor suspicious transactions.

Top managers in east Africa responsible for fraud increase

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