Corporate espionage raises demand for fraud experts

February 13, 2009: Demand for security experts is rising in corporate Kenya as companies move to guard their business secrets from aggressive competitors and prevent fraud from eating into their revenues, market statistics indicate.

This demand has only peaked in recent months as competition intensified in key sectors of the economy such as telecommunications, financial services, soft drinks and alcoholic beverages industries where new players have added to market rivalry.

The list of the corporate giants who have recently recruited security and fraud experts or advertised similar positions include KCB, Equity Bank, Finlay, and East Africa Cables Limited — and with good reason.

Data from the Economic Crimes arm of the Kenya Police indicates that there has been a steady upsurge in fraud cases in the recent past. Police records show that 1,908 fraud cases were reported in 2007 compared to 1,873 cases in 2006.

While this number may look insignificant, fraud experts say it only represents a tiny fraction of the cases. Many corporations such as banks are known to hush up their figures fearing the impact that full disclosure may have on their credibility in the market.

“Fraud is broadening and it is big business,” says Jane Mugo, the executive director of the Association of Certified Fraud Examiners (ACFE).

Chronic leaks

To deal with these chronic leaks and other security threats, Equity Bank, for instance, recently hired a former head of the Criminal Investigation Department (CID) to head its anti-fraud unit.

Joseph Kamau — a person who knows a thing or two about sniffing out fraud, is backed by 12 former chief inspectors of police.

Mr Kamau was the head of Kenya Police’s CID, logging nearly two decades as a field agent with the agency until he was appointed to tighten security at the bank.

Across all industries former senior law enforcers and military personnel are spearheading security efforts backed by professionals such as auditors and systems analysts to deal with emerging threats.

Multinational corporations operating in Kenya and aid organizations based in the country have long employed the services of former military and police personnel to oversee security operations.

But with a litany of possible fraud risks companies face growing by the day, new types of fraud are calling for innovative and able fraud detecting departments.

“These professionals are supposed to go beyond security as we understand it, they are supposed to pro actively manage the risk of fraud through prevention, detection and response,” says Ms Mugo.

Traditionally security personnel usually have only responded to fraudulent activities that are openly evident for instance the common cases of forged cheques and cash.

But computer fraud, accounting fraud for instance, which only a handful of security personnel can grasp, calls for a number of anti fraud professionals with different training backgrounds such as law, information technology and accounting.

“Kenya is increasingly becoming part of the global village and security risks are constantly on the rise,” says James Mwangi, Equity Bank’s chief executive officer. “Managing new kinds risks especially those stemming from fraud, can make or break a business,” adds Mr Mwangi

Multi-billion Scandals

From the multi-billion oil scandals that have recently grabbed newspaper headlines to theft of investor funds in the capital markets, fraud has become one of the biggest challenges facing both private and the public sectors.

In corporate Kenya fraud, for instance, fraud has become so rampant that a prominent forensic audit firm reached for comment on the subject opted not to, citing the fact that their in tray are full of requests for investigations.

Forensic audit

A board room meeting. Companies are increasingly guarding their business secrets from aggressive competitors and preventing fraud from eating into their revenues.

The evolution of fraud in corporate Kenya scene has only been made clear this week with the unravelling of the findings of a forensic audit report on troubled Nyaga Stockbrokers.

A forensic report compiled by accounting firm PricewaterhouseCoopers describes a complex web of operators spanning a number of sectors of the economy and banking while leveraging off technological advances.

Anti fraud experts say the complexity of fraud has redefined corporate security beyond the narrow parameters of guards, and safes.

As the economy gets more sophisticated and technology dependent, and business worth billions of shillings is transacted on-line, corporate fraud has only become more complex.

Firms are setting up intelligence gathering centres to constantly monitor and analyse emerging security threats from both internal and external fraud.
To put the importance of that information into perspective, consider that Wal-Mart the world’s largest supermarket chain.

With $378 billion in sales, the retail chain rivals the economic output of many African countries and employs 1.9 million people worldwide.

To a company like that, losing control of sensitive information could cost it millions of dollars. Because of the price that companies have come to tie to information, any leakage of such information effectively amounts to stealing from the pockets of shareholders.

As competition heats up in Kenya’s business environment, reports of leaked information to competitors continue be reported in various sectors especially in the telecoms, beverage and financial sectors.

But as businesses grapple with the issue of fraud, observers say that in many cases, firms are to blame for the rising incidents of fraud.

For fear of exposing themselves to reputation risks that could adversely affect business, corporations have tended to sweep cases of fraud under the carpet, rarely coming out of the open about fraudulent dealings unearthed within organizations.

“If you were to do a survey on fraud incidents in organisations, it would be very hard, until awareness is created on the benefit of sharing information or even making this fraudulent activities public,” says Ms Mugo.

Ms. Mugo says that a failure to share such information with each other is one of the reasons why fraud is on the constant rise.

Research carried out by advisory services firm KPMG indicates that in 89 percent of profiles assessed, the company concerned was damaged by its own employees.

In 20 percent of these profiles the employee acted together with an external perpetrator. Only in 11 percent of profiles were external individuals solely responsible for fraudulent acts. Results reveal that employees represent the greatest risk for the perpetration of white collar crime.

In some instances, individuals known to have perpetrated fraud have easily moved from one organization to another without raising any alarm bells in the new firms.

According to the KPMG survey an opportunity to commit fraud generally occurs through weaknesses in the internal controls and creates an atmosphere where fraudsters believe they are likely to be successful and undetected.

Internal controls

Organisations are very keen in grow the bottom-line and deliver tidy returns to shareholders. But it is not until recently that considerable attention has been given to managing and mitigating fraud risk which can easily sink a firm.

And even when there seems to be measures in place –a casing point being Kenya’s stock brokerage sector- very little is done to evaluate whether systems are fully robust. “The reality is that one or two major frauds can wipe out a viable business that took years to grow,” says Ms Mugo.

Traditional internal controls have proved inadequate in addressing the issue of financial statement fraud and fraudulent financial reporting for instance.

In spite of a lot of emphasis on good governance to address this issue, there are still a lot of grey areas due to the fact that , even what looks like good corporate governance lack expertise to deal with Fraud Risk Management.

Source: The Business Daily - Africa, www.bdafrica.com