East African banks lost Sh4.06 billion to fraud in the eighteen months ended June 2012 after failing to keep pace with technologically savvy criminals.
Data collected by the audit firm Deloitte indicates that banking fraud in the region was 25 per cent higher than a similar period in 2010.
However, Deloitte siad the figures may be understated as financial institutions remain tight-lipped about fraud figures.
“The pervasiveness and magnitude of fraud is on the rise. Technology is turning out to be a double-edged sword,” said Deloitte’s Forensic Director Robert Nyamu.
He noted that although technological advancements were increasing efficiency in the banking system, they also made it easier for banks to be defrauded.
Currently, the Real Time Gross Transfer System (RTGS) and other electronic money transfer modes pose the greatest fraud risk. Cheque fraud has also increased tenfold.
Ironically, the RTGS system was introduced to curb fraud in processing payments of over Sh1 million. This scenario is similar to what the audit firm report last year in their analysis of banking fraud in Kenya. (Nation)
According to Deloitte, innovation such as Mobile Money and Agency Banking are also presenting money launderers with security gaps to exploit. Both services are gaining regional currency as Kenyan banks open subsidiaries across East Africa.
Further, about 50 per cent of total fraud was committed in complicity with bank employees.
Last year, accounting company PricewaterhouseCoopers reported that the surge in banking fraud was due to “disgruntled or disillusioned employees who are usually young and more tech-savvy than their superiors".
The rise of internet connectivity is also posing threats for the local banking sector. According to Mr Nyamu, fraudsters are utilising weak links in the networks to launch attacks locally and internationally.
A report released by Internet security firm Serianu last week revealed that cyber criminals were sharing information on security gaps in Kenyan banks and leaking credit card information for as little as Sh800.
Deloitte says that efforts to fight fraud have been frustrated by inadequate data from financial institutions in the country. The firm is urging financial institutions in the country to step up their data sharing initiatives to prevent situations where the same criminals defraud several institutions.
“They don’t have to make this information public but they must share it amongst themselves,” said Mr Nyamu.