Young, gifted and crooked: Hi-tech fraud soars in EA

Employee training: Focus on training employees in personal responsibilities such as identifying and reporting suspicious activities.

Fraud threats: This should cover areas around detecting, preventing and investigating security breaches

Security assessment: Systematic ways of evaluating third party service providers and stopping reliance on poorly drafted contracts

The young technophile and the finance savvy guy, who has worked for one organisation for several years, is the apple of any human resource manager’s eye.

But increasingly, this is becoming the profile of the most dangerous employee in most East African companies — seen as the mastermind of the rising number of fraud cases in the region.

Improved technology, a growing number of techno-savvy employees and increased access to the Internet have opened up companies in the East African region to fraudsters, according to anti-fraud experts and business executives. Further, companies are ill-prepared to fight this intrusion, which is costing them millions of dollars annually arising from information security breaches and corporate theft.

This is the conclusion reached by risk researchers at financial advisory firm Deloitte in the report 2011 East Africa Security Study Report: Protecting What Matters, released on Thursday last week.

According to the report, 60 per cent of organisations in the region see financial fraud as the threat could have the biggest impact on their business in the next one year.

Risk experts said while rising cases of fraud are motivated by personal greed, there are increasing cases which are driven by pressure on individuals to achieve higher profit and budget targets.

Profits

Across the region, companies are putting their executives under renewed pressure to deliver on profit targets on the back of a poor economic growth outlook.

Surging food and fuel-driven inflation and exchange rate volatility have dimmed the economic outlook for this year in most EAC countries, spreading fears of low corporate earnings next year, should the situation worsen, and putting companies on notice to cushion their profitability.

The Deloitte report surveyed executives mainly from financial services, energy, telecoms and manufacturing in Kenya, Uganda and Tanzania. Security analysts said regional firms are not prepared for the potential security threat, especially financial institutions which present the most attractive targets due to the lure of money that can be easily siphoned out of accounts.
“Fraud is a threat but banks have been upping their cushions to fight it. Fraud trends are moving away from cheques where we have put enough controls,” said Habil Olaka, the chief executive officer at the Kenya Bankers Association, the industry lobby.

“Going forward, we expect the number of fraud attempts and the money being targeted to rise but cases of success might not be significant,” he added.

More than half — 54 per cent — of the companies polled by Deloitte said they were not doing anything or were simply not concerned with cyber-criminal capabilities.

Deloitte said weak control structures in most EAC companies are making it easy for fraudsters, exposing companies to costly financial and reputational risks.

It estimates that financial institutions in Kenya alone are reeling from losses of nearly $30 million through fraud cases reported in 2010.

In the first quarter, the firm says about $3.7 million was lost, with the second quarter recording a higher figure of $3.9 million. In the third-quarter, $17 million was siphoned with $5 million disappearing in December alone.