Banking sector fraud: A growing challenge
By Prof. Samuel Lartey
Introduction
IN recent years, Ghana’s banking sector has faced escalating concerns about fraud perpetrated by employees, staff cartels, and collaborators.
This troubling trend has created dissatisfaction among customers and regulators, shaking confidence in the financial system.
A fundamental way to address this growing challenge is the implementation and expansion of robust background checks, including comprehensive Police CID criminal background checks, for all categories of bank employees, permanent, contract, or temporary.
This article explores the significance of such practices, their relevance, and how Ghana’s banking industry can strengthen them to minimise fraud risks.
The State of Banking Fraud in Ghana
Banking fraud in Ghana has reached alarming levels, with reports indicating that the sector lost GH₵82 million to fraud in 2022 alone.
The Bank of Ghana’s 2022 Fraud Report revealed that the majority of these cases involved employees and insiders, underlining the critical need for rigorous pre-employment screening processes.
Fraudulent activities ranged from unauthorised withdrawals to insider collusion in cybercrimes, posing significant risks to the industry and the economy.
In 2023, Ghana’s financial sector experienced a total fraud-related loss of approximately GH¢88 million, marking a 7% increase from the GH¢82 million reported in 2022.
Breakdown by Sector:
- Banks and Specialised Deposit-Taking Institutions (SDIs):
These institutions reported a combined loss of about GH¢72 million in 2023, up 29% from GH¢56 million in 2022.
- Payment Service Providers (PSPs):
The PSP sector recorded a loss of GH¢16 million in 2023, a 38% decrease from the GH¢26 million reported in 2022.
Notable Trends:
- Staff Involvement:
Incidents involving bank and SDI staff rose by 46%, from 188 cases in 2022 to 274 in 2023.
- Electronic Fraud:
The number of electronic fraud incidents increased by 20%, from 12,166 cases in 2022 to 14,655 in 2023.
These figures highlight the evolving challenges within Ghana’s financial sector, emphasising the need for enhanced security measures and vigilant oversight to mitigate fraud risks.
The Importance of Background Checks
Background checks, including Police CID criminal records, are a first line of defense in reducing the likelihood of fraud. They help:
- Identify Criminal Histories:
Background checks can reveal previous criminal activities or convictions, deterring high-risk individuals from entering the sector.
- Assess Financial Reliability:
Evaluating an individual’s credit history can help determine their trustworthiness and capacity to manage sensitive financial data.
- Protect Institutional Reputation:
Banks face reputational risks when employees are implicated in fraud. Background checks help institutions maintain their credibility and customer trust.
- Strengthen Regulatory Compliance:
The Bank of Ghana’s directive on Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) frameworks emphasises employee integrity, making background checks a critical component of compliance.
The Current Gaps in Ghana’s Banking Industry
While some banks conduct background checks, the processes are often inconsistent or insufficient. Many financial institutions rely on references from previous employers, which can be biased or incomplete. Furthermore, temporary and contract staff often bypass the scrutiny applied to permanent hires, creating vulnerabilities in critical roles.
Best Practices for Enhanced Background Checks
To minimise fraud risks, Ghana’s banking sector must adopt comprehensive and standardised background check protocols. These could include:
1. Criminal Record Verification: Partnering with the Ghana Police Service for direct access to the CID’s database.
2. Executive Vetting: Enhanced checks for senior executives, including verification of qualifications, employment history, and financial records.
3. Social Media Screening:
Reviewing candidates’ digital footprints for signs of unethical behaviour.
- Global Databases:
For multinational banks, leveraging international watchlists and databases to verify applicants’ histories across borders.
- Continuous Monitoring:
Regularly updating background checks, especially for high-risk roles such as tellers, IT personnel, and relationship managers.
Incentivising Compliance and Minimising Fraud
While robust checks are essential, fostering a culture of accountability and integrity within the banking industry is equally critical. To achieve this:
- Punishments for Fraudulent Employees:
Banks must impose stringent consequences for fraudulent employees, including legal actions and public disclosures. This would act as a deterrent to potential offenders.
- Rewards for Whistleblowers:
Incentivising employees to report suspicious activities through financial rewards or career advancements can help uncover insider fraud.
- Recognition for Ethical Practices:
Establishing industry awards or certifications for institutions with exemplary fraud prevention measures would encourage best practices.
Expanding the Practice: A Collaborative Approach
To ensure the sustainability of these measures, collaboration among stakeholders is necessary:
• Government Agencies:
The Ministry of Finance and the Ghana Police Service should develop a centralised database for easier criminal background verification.
• Industry Regulators:
The Bank of Ghana and the Ghana Association of Bankers must mandate and monitor compliance with background check protocols.
• Educational Institutions:
Schools and universities could incorporate financial ethics into curricula, creating a culture of integrity from a young age.
• Public Awareness:
Media campaigns can educate customers on fraud prevention and the role of background checks in securing their funds.
Financial Impact
Countries like Kenya and Nigeria, facing similar issues, have reported success in mitigating fraud through stringent employee vetting practices. For instance, Kenya’s Central Bank requires all banks to submit employee vetting records annually. Ghana could adopt similar policies to strengthen its banking sector.
The financial impact of these measures would be profound. Reducing fraud could save banks millions annually, improve customer confidence, and enhance Ghana’s overall financial stability. With fraud costing over GH₵114 million in 2022, even a 50% reduction could translate to significant financial gains.
Conclusion
Fraud in Ghana’s banking sector is a serious concern, but it is not insurmountable. By institutionalising robust background checks, enhancing regulatory frameworks, and fostering a culture of integrity, the industry can regain the trust of its customers and regulators. As the saying goes, “an ounce of prevention is worth a pound of cure.” It is time for Ghana’s banking industry to prioritise prevention over reaction, ensuring a secure and trustworthy financial system for all.
Prof. Samuel Lartey
sammylaatey@yahoo.com
