Rising banking fraud – Who is to blame?
The 2019 banking industry report by Bank of Ghana on fraud activities in the banking sector indicates that fraud cases increased from 2,175 in 2018 to 2,295 in 2019, representing an increase of 5.5 per cent.
Although the increase in cases for the period under review was marginal compared to increases in previous years, there is still a cause for concern, especially when about 94 per cent of the reported cases involved staff of banks who were supposed to protect depositor’s money.
The Bank of Ghana reported that the marginal increase in the number of fraud cases reported may partly be attributed to the improved efforts by the Financial Stability Department to identify, monitor and to ensure compliance with reporting of fraud cases in the industry.
The Central Bank also noted that the various forms of advanced technologies adopted by financial institutions have made the banking sector more susceptible to various risks such as phishing, identity theft, card skimming, vishing, email fraud and more sophisticated types of cyber-crime which therefore required that banks put in more efforts to protect customers.
While banks have been quick to blame customers for incidences of fraud, citing reasons such as customers disclosing their PINs and certain vital information to third parties, customers have also in turn blamed banks for failing to protect their funds. Some have also blamed the regulator for failing to institute measures to protect customers from fraud.
But, speaking in an interview with Mr. Philip Danquah Debrah, Head of Business Operations, e-Crime Bureau, he said all the three stakeholders have a role to play as far as banking fraud is concerned.
He said following several engagements with industry players, it had become evident that the issue of bank fraud was a major worry for all the players. He, however, commended the Financial Stability Department for taking charge of the situation.
He said the players in the industry engaged the Financial Stability Department regularly to present their industry perspective on some of these developments.
“it has become quite inconvenient for us because every now and then, we engage and speak about this same issue, but we don’t seem to be making enough progress on it. But specifically, with regards to the issue of financial crime, suppression of cash is classified as non-cyber related fraud and we need to do an assessment of why we are seeing an increase in this particular area.”
Rural bank cases
According to the report, Rural and Community Banks constituted 55 per cent of the total cases, while commercial banks and savings and loans institutions reported 23 per cent and 22 per cent of the cases respectively.
It is curious for one to want to know why a larger proportion of the reported cases occurred in the Rural and Community Banks as compared to the other categories of financial institutions.
To this, Mr. Debrah attributed it to the fact that the rural banks have failed to take advantage of technology in their operations and were still relying on individuals who move around to mobilize deposits in homes and businesses.
Graphical Representation of Fraud Cases Per Fraud Type Source:
Now, if you analyze that carefully, it turns out that the rural banking sector have not really transformed into the digital domain in terms of taking advantage of technology to transform their banking procedures and the way they engage with their customers.
And so, once we have this teaser, it means that the rural banking sector has a lot more of deposit mobilizers; that is, people that the banks engage to go round businesses and individuals to mobilize cash as deposits.
So obviously when we have such a scenario, coupled with the poor monitoring and evaluation, we will easily find people absconding with such monies and that has been the business for such people.”
Customers partly responsible
Mr. Debrah further stated that customers need to acknowledge their personal responsibilities in the growing fraud activities in the industry as some of them fail to make due diligence before giving out their monies to people who come to them as staff of the banks.
This is because their investigations have shown that individuals just commit monies to people without ensuring that they are getting the monies into their accounts.
This is compounded by the poor monitoring from the banking institutions which then create an opportunity for people to engage in such practices.
He was however quick to add that, this did not mean the clients should be punished but it calls for a shared responsibility.
“It has become a culture, a bank recruits somebody, they don’t do background check on the person and the banking sector is also such that people move from one bank to the other. There are no proper checks and the person goes ahead to engage in similar activities where the monies don’t even end up in the customer’s account. So when the person absconds, the bank cannot trace where the person lives to even establish contact for prosecution and that money goes down the drain. So clearly, it’s a mix of issues which we have to look at critically.”
Involvement of bank staff
The report indicated that 94 per cent of the fraud cases reported as suppression of cash and deposits were perpetrated by staff (either contract or permanent) of the financial institutions.
It is quit baffling as to what might force workers of financial institutions to engage in such fraudulent activities.
Mr. Debrah indicated that this was as a result of the fact that the system in the banking industry creates enough opportunities for workers to exploit.
“It’s a million of issues. Once you run a system that create opportunities, there is the incentive for fraud. It will be pre-mature to attribute this to low salaries. But every institution needs to strategize and find ways of flushing out bad people.”
He went on to say that, there was the need to critically access the risks that people were bringing into the institution before employing them.
He was of the view that constant monitoring and the right systems to report fraudulent activities, will help flush out such people in the banking sector.
Role of government
Looking at the important role played by a strong and resilient financial sector, including deposit-taking institutions in economic development, the government has a role to play in ensuring the safety of depositors at the various deposit-taking institutions.
Mr. Debrah believes the only thing government could do is to enforce the laws governing the financial industry.
He attributed the earlier banking crises that happened in the country to lack of enforcement and compliance of the banking regulations.
“I think it’s an issue of enforcement of the regulations. The government need to pick up such issues at the go so they can address them without delays. If this is done, it will make people confident to deposit their monies in these institutions, rather than watching it to result in the collapse of the banks. The lack of confidence makes people patronize the mobile money since they can easily get access to their money.”
Mr. Debrah said the BOG has the ultimate responsibility as a regulatory body of deposit-taking institutions.
“The Bank of Ghana ultimately has the responsibility but I think that usually when it comes to the issue of cash suppression, it boils down to how well the rural banks are also able to transform their operations in the digital space. This will make operation and monitoring easier and apparently transaction becomes easier. The rural banks should see how best they can invest in technology so that they will be better positioned to handle depositors’ cash.”
According to him, the Bank of Ghana has given licenses to some third parties to roll up platforms that will support transactions of financial institutions. Therefore, institutions that do not have the financial capacity to install such systems can contact these licensed third parties to do that on their behalf.
“It takes money, it takes time and if they cannot develop these platforms themselves, they can get a reliable third party to provide that service on their behalf. But apart from that, you know that mobile money subscription has increased exponentially in the past 5 years and the rural banks can also take advantage of mobile money to enhance their banking systems.
“Mobile money can be used by the rural banks to limit the money suppression. There is the need for more education so that people can take advantage.”
Banks’ ISO certification
He also mentioned that although there was a limited number of banks with ISO certification which should be a worry for customers, there are different ways of managing risk that banks could explore.
ISO is a governance framework that makes institutions follow the right procedures. ISO is quite expensive and most of these institutions will not have the funds to implement it.
“Organizations need to do a monthly risk assessment to know their level of exposure especially with regards to digital platform risks and vulnerabilities. This will help track criminals that will like to take advantage of such vulnerabilities. So, it is a combination of factors and institutions need to do regular training of staffs, technical, medium-technical and non-technical people.”
To help minimize, if not completely eliminate, the menace of banking industry fraud in Ghana, the finance expert recommended that; “The banks should take charge of protecting customer’s deposits but individuals should also take some responsibility to protect themselves.
“This is because what we have seen now is that financial institutions are recording fraud because people who use their services are vulnerable. Individuals must take precaution for whatever devices they are using for their financial transactions.
“You need to know the environment you find yourself and the kind of people you are dealing with so you don’t let yourself out. We always point fingers at the banks as if they are not doing anything but the individuals have a role to play. We need to also support the system as individuals.”
The Central Bank has also recommended that banks as well as deposit-taking institutions do proper vetting of prospective employees before they are finally employed.
Again, equal remuneration should be given to both permanent and contract staff in all financial and deposit-taking institutions, due diligence from bank customers when dealing with cheque transactions and customers are also encouraged to use efficient electronic payment methods.
Telecommunication players were also encouraged to strengthen their cyber-security systems as well as enhancing strong monitoring and evaluation system.