Banks lost Sh2.96 billion in 2010 from internet fraud. Photo/FILE
Improved technology, a growing number of technology-savvy employees and increased access to the internet have opened up the country to fraudsters.
According to financial services consulting firm, Deloitte, Kenyan financial institutions are reeling from increasing fraud cases.
The firm estimates that last year alone, banks lost Sh2.96 billion in 2010, out of which Sh1.7 billion was recovered.
In the first-quarter of 2010, about Sh371 million was lost, with the second-quarter recording a higher figure of Sh390 million.
In the third-quarter, Sh1.7 billion was siphoned with Sh500 million disappearing in December alone.
Mr Robert Nyamu, forensic and litigation services director at Deloitte East Africa in a presentation to financial institutions at Serena Hotel on Tuesday, said actual fraud statistics are difficult to determine due to numerous unreported cases.
“Many institutions prefer internal resolution of fraud cases than referral to law enforcement agencies, due to reputational risk,” he said, “It is alarming that the rate of convictions for bank fraud is very low.”
In the second-quarter of 2010, 108 suspects involved in 102 reported bank fraud cases were arrested and charged in court, but only eight cases were finalised, with five convictions and two cases withdrawn.”
“Systems expected to improve competitiveness have instead created loopholes for fraud,” Ms Faith Basiye-Omolo, group head Forensic Services KCB said, “Fraudsters are deploying hi-tech tools and every small loophole in the system is being exploited.”
Ms Omolo, who is also the chair Kenya Bankers Association (KBA) fraud and security committee, said a number of controls in banks are weak and need to carry out proper audit trails on systems and authorisations, fraud risk assessments.
“There is need for proactive monitoring and logging of activity, adherence to best practice in information security, training and adequately equipping investigators,” she said.
The Deloitte study cites identity theft, electronic funds transfer, bad cheques, credit card fraud, loan fraud, forgery of documents and investment scandals as some of the ways used to defraud banks in Kenya and the region.
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