Response Strategies To Fraud By The Listed Commercial Banks In Kenya

Abstract

The threat of fraud to banks emanates from both their internal and external environments. Fraud has been and continuous to be a major risk facing banks in Kenya. It is a subject that receives wide coverage in the Kenyan print and electronic media as the figures involved are almost always quite substantial. This study sought to establish the response strategies to fraud by the listed (publicly quoted) commercial banks in Kenya. This study adopted a descriptive survey design because it aimed at giving an accurate description on the response strategies to fraud in the listed commercial banks in Kenya. The target population for this research comprised of all the 11 listed commercial banks in Kenya. The study collected both primary and secondary data using a semi-structured questionnaire while secondary data was obtained from review of reports from the Banking Fraud and Investigations Department of Central Bank and review of periodic reports filed by the listed banks. The study found that the heads of fraud and investigations in listed commercial banks have appropriate experience and knowledge of responding to fraud. The study concluded that the pressures that often motivate fraud are staff frustrations, poor/lack of controls, and lack of product knowledge. The study also found out that preventative, training, detection, prosecution and investigation strategies are used by all the listed banks in managing the fraud menace. The level of staff involvement in the fraud process was found to be reasonably high. Issues around financial over commitment and inadequate reward strategies were noted to be major drivers for staff involvement in fraud. The existence of a whistle blowing policy and fraud policy was found to be very rigorous commensurate with the company’s fraud risk and taking into account applicable legal considerations. All the banks were reported to have gone through various forms of growth in the last 5 years during which time the study found out that fraud was effectively and adequately addressed. The law enforcement agencies play a critical role in fraud management in any jurisdiction. This study concluded that they were moderately successful in the fight against fraud. The fraud investigations by listed commercial banks were found to be successful. The study recommended establishment of units to specialize in proactively targeting and reactively investigating cases of staff fraud, that Banks should invest in technology based fraud fighting tools, enhance the pre-screening of potential employees, train officers on IT investigations as the current fraud trends are through cyberspace, enforce internal controls, emphasizing on know your customer policies and customer due diligence before opening bank accounts. The study recommended a review of the security features on the identification documents used to open accounts as another strategy that could play a great role in frustrating fraud in commercial banks. Another recommendation from this study is for the listed commercial banks to embrace and fast track the adoption of the chip technology in their card business which has been found to be effective. It was recommended that fast tracking of the reforms in the police and judiciary sectors will improve the turnaround of prosecution of cases and sentencing of fraudsters.