More worries as Kenyan banks lose Sh1.5 billion to fraud

By James Anyanzwa

The Central Bank of Kenya (CBK) has raised concerns over the rising incidents of internally generated fraud within the banking industry.

Reported figures show commercial banks lost an estimated Sh1.5 billion through electronic fraud in 12 months (April 2012-April 2013).

 The funds were stolen through automated teller machines, payment cards and Point of Sale between April 2012 and April 2013.  “Most of these fraud is internal to these institutions,” Stephen Nduati, Head of National Payments System at the Central Bank told The Standard on Sunday.

“We have enhanced our ability to oversee payment systems. My job is to ensure efficiency and safety of the payments system,” he noted

“If there is fraud, it is within a bank. Our Real Time Gross Settlement (RTGS) system is clear and safe. We have encouraged banks to put in place in internal controls as fraud can only be in an individual institution but not within the RTGS systems.”

 According to the bankers lobby, the Kenya Bankers Association (KBA) fraud could take place at the point of entry into the RTGS.

“We are fairly confident about the RTGS system. Vulnerability lies at the point of entry into the RTGS,” Chief Executive Habil Olaka told The Standard on Sunday in an earlier interview.

“Individual banks are required to put in an elaborate internal control system to ensure that the system is not interfered with.”

The introduction of RTGS was a risk mitigation measure, which has seen an average of over 7,000 transactions valued at Sh86 billion moved through the system daily according to the CBK’s latest statistics.

In 2011 commercial banks agreed to combine efforts in weeding out dishonest employees from the banking industry following shocking incidents of banking fraud. Under the arrangements commercial banks agreed to discuss and share information on fraudulent staffs implicated in financial scams with a view of tracking and blacklisting them.

In some incidences, bank tellers or clerks collude with outsiders and even with their supervisors to defraud the banks they worked for.

KBA has since directed its members to re-audit their employees after it emerged that most of the banking fraud, which have hit the industry, were internally instigated.

KBA expects individual banks to put in place elaborate procedures to deal with errant employees. “We are taking a zero-tolerance position where severe action, including criminal prosecution would be taken against employees found to have colluded with fraudsters,” said Olaka.

Stringent measures

According to the Association, commercial banks are now stringent following the recent spate of fraud cases in the industry.

Banks are also working closely with each other and sharing intelligence information on fraud patterns, and habits. Information on fraud perpetrators is also shared to deter the vice as well as control incidents.

 “Most of this work is done through a specific committee of the KBA – Bank Fraud and Security Committee,” said Olaka. He said more ways of sharing intelligence and information are being devised as banking fraud trends become evident.

Olaka said fraudsters have since changed tactics in tandem with technological advancement.