Local firms lose over Sh5 billion to fraud

About 100 companies lost Sh5.5 billion to fraud in just two years, according to a survey that is helping capture the cost of economic crimes on Kenyan firms.

Bribery to win contracts or losing out on opportunities after refusing to give kickbacks tops the list of the widespread fraud reported in the study conducted by forensic consultants at PwC.

Compared to the previous study in 2018, economic crimes are declining in prevalence through the quantum of losses per incident is soaring. In effect, the perpetrators who are mostly insiders are getting bolder, which investigators described as “very disruptive” and a real threat to the continued existence of institutions.

More than 102 firms responded in a self-assessment where they would volunteer information via a secure platform, a majority reporting to have lost over Sh10 million.

Should the findings be representative of the broader economy as deemed by the fraud investigators, then graft might be an understated landmine in doing business.

As an illustration, two of the respondents reported having either paid or had been asked to pay over Sh500 million during the period covering the survey. “…fraudsters are getting bolder and we can’t afford to just watch,” said Thoithi Muniu, the leader of advisory services at PwC.

Respondents in the survey included listed or private companies, government-affiliated institutions, NGOs and private equity funds. The survey showed remarked decline in some form of economic crimes reported - at 58 per cent compared to 75 per cent previously.

Other forms of crimes reported included procurement fraud, asset misappropriation and customer fraud - prevalent among banks and insurers. But it is bribery and corruption that soared the most since the previous survey - where the prevalence in the country jumped from 30 per cent to 42 per cent.

In many of the cases where bribery was reported, it also involved procurement fraud - meaning that the two crimes are intertwined. PwC’s study extended to 99 countries and territories globally, covering over 5,000 institutions.

From the findings, Kenya’s prevalence of economic crimes ranked higher than the global average but just below South Africa on the continent.

Kenya has, however, remained stuck in the bottom half. Mr Muniu linked the various forms of fraud to low employee morale and in the worst cases, the collapse of businesses and the attendant job losses.

He has been involved in the administration of distressed companies as a court-appointed receiver-manager where he has unearthed vast cases of fraud that has sunk big corporations.