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Fraud cases in financial institutions drop marginally

BY: Charles Benoni Okine
Ernest Addison, Governor, BoG

STAFF involvement in reported fraud cases in financial institutions in the country has dropped marginally.

A report by the Bank of Ghana for the year 2021 revealed that the reported fraud cases fell to 53.46 per cent, 3.01 per cent lower than the 56.47 per cent recorded in 2020.

The Rural and Community Banking sector recorded the highest rate of staff involvement in fraud for 2021 with a figure of 46.04 per cent while the universal banks accounted for 28.06 per cent of fraud involving staff.

The Savings and Loans sector on the other hand accounted for 16.55 per cent of fraud involving staff.

Observation

The report said the consistently high rate of staff involvement in fraud cases reported by banks and Specialised Deposit Taking institutions (SDIs) “may be due to lack of adequate control systems in the financial institutions (especially the rural banking sector), poor background investigations for prospective, newly appointed and temporary staff, poor remuneration in the banking and SDI sectors, among others.”

“The persistent rate of increase in staff involvement in fraud recorded over the last three years shows that the banking sector, especially the Rural and Community Banking sector has not put in place enough effort into curbing the trend.”

Sectoral fraud trends, analysis

The report said Automated Teller Machines/Point of Sale (ATM/POS) fraud recorded a loss of GH¢22.99 million for the year under review, adding that “Universal banks accounted for nearly all the loss for ATM/POS fraud. The banks recorded a rate of 99.98 per cent, leaving 0.02 per cent for the savings and loans sector.”

Impersonation

With regard to impersonation fraud which refers to a scheme that involves an imposter fraudulently posing as a representative of a person or entity and deceiving the victim into making payments into the fraudster’s account, the report said: “Incidents recorded in 2020 involved cases of fraudsters who took advantage of the ignorance of the banks or SDIs’ staff and/or the absence of adequate access and control systems, to deceive ignorant staff into granting them access to the banks’ accounts, thus enabling them effect transfers into designated accounts held by the fraudsters.”

It said impersonation accounted for 13.38 per cent of total loss accrued by banks and SDIs for 2021.

The banking sector accounted for the highest success rate of 90.65 per cent while the savings and loans sector followed with a success/loss rate of 87.70 per cent.

Lending/Credit Fraud

The report said loss incurred by the banking and SDI sector through lending/credit fraud was estimated at approximately GH¢8.2 million, which is 10.66 per cent of the total fraud related loss recorded by the banks and SDI sector for 2021.

The sector recorded an attempted value of GH¢10 million, as compared to GH¢0.68 million in 2020.

“The banking sector recorded the highest loss value of GH¢7.8million and a success/loss rate of 83.26 per cent.

The Rural and Community Banking sector follows with a success/loss rate of 71.09 per cent and a loss of GH¢0.24 million.

The Savings and Loans sector recorded a loss of GH¢0.12 million with a success/loss rate of 35.62 per cent.

E-Money Fraud

With regard to E-Money fraud which refers to deception perpetrated with electronic money issuer platforms, the report said this kind of fraud in the banks and SDIs sector recorded a loss of GH¢3.2million in 2021.

This figure, it said, showed an increase from the 2020 statistics where a loss of GH¢1.04 million was recorded.

E-Money fraud accounted for 5.3 per cent of the total fraud related loss recorded by the banking and SDI sector for 2021.

This fraud type was mainly prevalent in the universal banks, rural and community banks.

In terms of breakdown, the report said the banking sector recorded the highest success/loss rate of 79.86 per cent.

The Rural and Community Banks also recorded a success/loss rate of 78.53 per cent.

It said E-money fraud continued to record significant increases in the rate of occurrence and losses incurred.

Some of the predominant modus operandi for E-money fraud are Impersonation of supervisory officials from the institutions and E-Money Issuer officials, unauthorised access to Bank MOMO accounts and transaction systems and social engineering attacks.

Recommendations

Subsequent to the development, the central bank in its report, asked banks and SDIs to take a critical look at their control measures for lending.

“Strong and effective implementation control strategies and due diligence should be applied for easy detection of fraudulent
documentations used in lending transactions.

Banks and SDIs should adequately provide education and sensitise their customers at the stage of signing onto their electronic/digital products.”

The report said the education and sensitisation must be clear, simple and easy to understand.

For SDIs and the EMIs, the report said the sensitisation drive should also be in multiple local languages, targeted at the most vulnerable.

“Bank of Ghana will continue to ensure that the institutions comply with the Cyber and Information Security Directive and submit Fraud Reports as and when they occur and on a monthly basis.

Bank of Ghana will intensify supervision to ensure that all staff of Banks and SDIs undergo exhaustive background checks.”