- 56% of banking sector fraud aided by staff
- Digital/electronic related transactions fraud most worrying
A new report by the Bank of Ghana on fraudulent activities in the banking sector has revealed that more than half of incidents of the criminal activity in 2020 was carried out with the help of staff, with total value of reported cases hitting GH¢1bn for the first time.
According to the Banks’ & SDIs Fraud report, 56 percent of fraud incidents reported in 2020 indicated the involvement of staff members of the reporting institutions, as compared to 51 percent of staff involvement reported the previous year.
Despite the astronomical jump in value of attempted fraud in the sector, actual losses incurred as a result of fraud for 2020 stood at GH¢25.4 million, as compared to an estimated loss of GH¢33.4 million in 2019, representing a 24 decrease.
The type of fraud which saw the highest involvement of staff is suppression of cash – where a staff takes cash from customers but does not record the full amount in the books and tries to balance it off with deposits made by other customers. The report shows 78.6 percent of all cash suppression cases reported in 2020 had the involvement of staff. And out of a total of 2,670 fraud cases reported in 2020, 1,958, representing 73.3 percent of total submissions were related to suppression of cash.
The microfinance sector and rural and community banking sector recorded the highest success rates of 68.9 percent and 68.2 percent respectively in cash suppression fraud. This is followed by the savings and loans sector with 53.3 percent; the finance house sector with 44.7 percent and the banks with 40.9 percent.
Rural community banks lost GH¢1.6 million through cash suppression, as against a total of GH¢538,595 by banks. These loses, the report states, may be as a result of weak internal controls, or nonadherence of institutions in the sector to their own security systems.
The regulator further blames the incidence of fraudulent activities on inadequate vetting process, poor remuneration, weak systems, among other things.
“The heightening rate of staff involvement may be attributed to inadequate vetting processes of staff of financial institutions. Also, weak internal control systems that allow unauthorized staff to interact with customers, as well as unauthorized staff accessing confidential information and systems that should have been restricted to authorized personnel only, are the major contributory factors that lead to the escalation of this fraud type.
Furthermore, the inadequate levels of remuneration for temporary staff engaged by banks and SDIs as a contributory factor to the recurring phenomenon of staff involvement in cash suppression fraud, cannot be overlooked.
To mitigate the incidence of this fraud type, financial institutions especially banks and rural and community banks should undertake to reduce drastically, the engagement of contract staff in sensitive cash related positions. Banks and rural banks must also endeavour to vet their temporal staff before they engage them. The Banking sector must engage the employment agency sector to possibly set minimum remuneration standards for specific positions in the banking industry,” the report said.
The total value 2020 fraud cases increased by 773.6 percent from the GH¢115.5 million recorded in 2019. This, the report states, is as a result of increased values in attempted correspondent banking fraud where, in some instances, single incidents reported values as high as €100,000,000.
Other reasons given by the report also suggests the absence of corporate governance structures in some sections of the banking sector, resulting in the lack of accountability and transparency in their activities, were also responsible for the increase in the crime.
Pandemic-induced fraud most disturbing
What raises a major cause for worry is that fact that the increase in some of the fraud cases were largely due to customers’ adoption of digitisation and electronic modes of transaction, as the pandemic propelled people who, would have otherwise sought for in-person services, decided to go online in order to respect the covid safety protocols.
The movement of transactions digitally and electronically though was positive for the economy, as it pushes the cashlite agenda, it turned out to bite customers and the banking sector in general, given that there was higher exposure to fraud among electronic transactions.
For example, ATM/POS related fraud accounted for 32.2 percent of total fraud related loss incurred in 2020, and recorded the highest loss value of GH¢8.19 million in the year, as compared to GH¢1.26 million recorded in 2019, representing a 548.1 percent increase in year-on-year terms.
Again, E-money fraud also recorded a significant increase in loss value. Loss incurred through E-money fraud increased from approximately GH¢370,000 in 2019 to an estimated GH¢1.04 million in 2020, representing a 180-percentage increase.
Meanwhile, in-person services such as cheque transactions took the opposite direction, as cheque fraud recorded the most significant reduction in its success rate in 2020. The success rate of this crime declined from 77.7 percent in 2019 to7.7 percent in 2020.
Recommendations
To address the problem, the Bank of Ghana has recommended that, among other things, contract/temporary staff of financial institutions should be adequately vetted by the Police and Bank of Ghana to help identify staff with questionable characters.
It adds that the banking industry should take a critical look at remuneration of temporary staff and, in collaboration with the recruitment industry, set equitable minimum standards of payment for temporary staff assigned to the banking sector.
Also, the Know Your Customer (KYC) and transaction monitoring systems of financial institutions have to be strengthened in order to facilitate the detection of suspicious or abnormal activities on customers’ accounts; and E-Money issuers must enhance and sanitize their existing KYC database by acquiring authentic and verifiable bio data on all existing mobile account holders.
Furthermore, it recommends that banks should provide regular and adequate consumer education on cyber security for their customers, in order to equip account holders to protect themselves from cyber fraud; and also ensure that they activate a second level authentication in online transactions, by requesting for specific One Time Passwords (OTPs) and PINs.
Then, again, the report adds that consumers should be educated on the safe usage of digital/electronic products and services. They should also be encouraged to use efficient electronic payment methods that keep an audit trail of fund movements.
