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A large portion of fraud occurs with support of staff, says report
Banks have reported an increase in loan-related fraud, which in the three months to June, doubled to at least 46.5 percent. Photo / File
What you need to know:
- In a presentation Ligomarc Advocates gives the example of mobile money, where 86.5 percent of scams against users are “insider fraud”
Law firm, Ligomarc Advocates, says a large share of fraud, especially among financial institutions, is assisted internally by staff.
However, Ligomarc doesn’t give an illustrative figure but notes that when examined extensively, there is a trail of connivance from within that helps outsiders defraud financial institutions.
“A significant portion of frauds occur with the assistance or involvement or participation of internal staff,” a presentation by Olivia Kyarimpa Matovu, the Ligomarc partner dispute resolution presented during the Uganda Bankers Association Conference, reads in part.
For instance, Ms Matovu quotes a GSMA Survey, which indicates that 86.5 percent of fraud committed against mobile money users is “insider fraud”. It ranks as the third-highest type of fraud against mobile money users.
The GSMA report also notes that Identity fraud against mobile money users ranks as the most recorded type of fraud at 90.4 percent, followed by social engineering and Sim swap at 88.46 percent and 78.9 percent, respectively.
Fraud remains a serious challenge to financial institutions and payment service providers, including mobile money and payment aggregators.
Data from Uganda Bankers Association indicates that loan-related scams doubled in the three months to June, overtaking impersonation and identity theft as the most recorded type of fraud among financial institutions.
During the period between March 2023 and June 2024, UBA indicates that loan-related fraud reduced to 23.3 percent in March from 25.7 percent in March 2023, before doubling to 46.5 percent in June.
UBA, however, does not, explain the cause of such exponential growth.
Previously, UBA has reported impersonation, identity theft, forgeries, and cash suppression as the most recorded types of fraud, but scams under this category dropped from 40.4 percent to 31.3 percent, before reducing further to 29.1 percent in June.
Similarly, whereas card and mobile banking-related scams had grown by 13.3 percent in the 12 months to March from 31.9 percent to 45.2 percent, they dropped to 31.6 percent in the quarter to June.
The growth has, therefore, ignited financial institutions under UBA to work on measures such as Artificial Intelligence (AI) to mitigate the increasing threat of fraud.
Ms Patricia Amito Lutwama, the UBA head of communications and corporate affairs, last week told Monitor that players in banking had started researching on the viability of AI as a tool to mitigate fraud.
In an analysis on navigating the future of banking published by UBA, Mr Rodney Adriko, a postgraduate researcher in cyber security at the University of Kent, UK, said AI promises significant capabilities in the know-your-customer process as algorithms can collect data from multiple sources to generate a comprehensive know-your-customer report, which removes unnecessary handling of paper.
“AI algorithms can advance passive models to always on models that continuously discover, extract, mine, draw inferences, and generate data to inform decision-making processes. This can play a significant role in preventing fraud, which has notably impacted the financial services industry,” he wrote.
Ligomarc indicates that the annual police report recorded a loss of Shs1.8 trillion in economic crimes, of which only Shs80b was recovered.
Deed for mitigation
The 2024 Association of Certified Fraud Examiners global report indicates that organisations across the world lose 5 percent of their revenues to fraud annually with an average of 1,921 cases worth $3.1b reported during 2023.
Therefore, Mr Julius Kakeeto, the UBA chairman, says the magnitude of the current fraud requires financial institutions to collaborate on promoting integrity among banking and financial sector staff, by increasing collaboration outside financial institutions to include security and law enforcement agencies domestically and internationally, invest in fraud detection human resources, and close knowledge gaps.
