Fraud is the intentional making of a misrepresentation with the intent to deceive by one or more persons. This people may be within or without the organisation causing actual or potential loss. Banking in Kenya can be a very risky business like in many other parts of the world.
Fraud may be corruption, theft, misuse of funds, insider trading, tax evasion counterfeiting, forgery, conflict of interest to name but a few.
Why is fraud committed
There are three main reasons why fraud is committed. These are Motive, Rationalization and Opportunity.
Motive to commit fraud
Motive means the reason behind the action. In banking fraud, fraudsters are motivated by
- Greed because they want to have it all and more that anyone else
- Peer pressure especially where the peers have done very well financially
- Personal financial difficulties like gambling, drug abuse or alcoholism, habits that must be supported and which are very expensive.
- Revenge or grudges will motivate one to commit fraud
- Dishonesty or perceived behavioural norm
- Intimidation or threats will lead you to commit fraud because of fear
- Unrealistic targets that cannot be achieved
- Lenient penalty given to those who have been caught committing fraud will encourage others to attempt fraud since they will get away lightly
Rationalisation of fraud
These are the excuses we give to get away with our actions.
- Fun. Fraud is sometimes explained as a game by those who are fraudulent
- Taking from the rich to give and distribute to the poor. Fraud is excused as a way to ensure that there is equal distribution of wealth, so it is not wrong
- It is the order of the day and everybody is doing it. So to be like everybody else, you must join in the action.
- I will not be caught and so I will go ahead and continue with the activity. Sometimes you may think that nobody will ever know what you have been doing
- I am testing the system and control is a good excuse. The results of the fraudulent activity are never disclosed to the authorities in the bank after the ‘testing’ has succeeded
- I am being underpaid and so I must get my cut or fair pay even if I have to commit fraud to get even.
Opportunity for Fraud
- Absence of procedures. The rules that govern how the company is run are not there so the employees and the customers do what they want or think should be done. There is no precedence which creates opportunities for fraud to be perpetrated
- Inadequate or lapses in controls though better than having any procedures, is still lacking since fraud can still be perpetrated easily
- Inadequate supervision or lax management. When the management is not alert or too harassed to adequately supervise the staff and ensure the procedures are adhered to, fraud opportunities are created.
- Inadequate auditing procedures, control checks and surprise checks will lead to creation of fraud opportunities. The bank must ensure that checks are done periodically.
- Inadequate training and knowledge. Without knowledge the opportunities to commit fraud are unlimited since the fraud detection mechanism is also absent
- Inadequate staff hiring practises to ensure vetting of prospective employees. The Human resources department must ensure that the employees are vetted adequately to filter out the undesirable staff compliment.
- Inadequate physical security. It is very important that the bank ensures that physical security like safes, locks, security cameras and security guards etc are available and working. Physical security discourages fraud opportunities
Banks and other organisation must ensure that they put in place measures to counter fraud and reduce their loses.
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