Probe fraud cases within banking sector – Kumadoe

FRAUD prevention and cybersecurity expert, Mr. Richard Kumadoe, has called for greater accountability and more conclusive investigations into fraud cases within Ghana’s banking sector, stating that these failures are key drivers of rising financial losses.

Speaking on Zed in the Morning on Zed 101.9FM, Kumadoe warned that when offenders go unpunished, it emboldens criminals to continue operating with impunity. “When there are no consequences, criminals feel they can act without fear of repercussions,” he emphasized.

His remarks follow a 2023 report that revealed a worrying trend in the banking sector. Despite a 17% reduction in the number of fraud cases—969 cases, down from 1,163 in 2022—the financial losses incurred by the banks increased by 21%, rising from GH₵52 million in 2022 to GH₵63 million in 2023.

This paradox, where fewer cases are resulting in higher financial losses, has raised concerns among stakeholders and triggered debates about the effectiveness of current fraud prevention measures.

Kumadoe attributed part of this surge to serious lapses in internal controls within banks. He pointed out that delays in reporting fraud incidents or outright attempts by some bank units to conceal fraudulent activities give criminals the opportunity to exploit loopholes within the system.

“When banks don’t report fraud promptly, or worse, try to cover it up, it makes it harder for the authorities to respond quickly, and this gives fraudsters more room to operate,” he explained. This culture of non-transparency, he argued, must be addressed for any meaningful progress in fraud reduction to occur.

The pressure on banks to meet ambitious financial targets was also identified as a key factor exacerbating fraud risks. Kumadoe noted that, in their bid to meet performance goals, some banks either bend the rules or outrightly break them, prioritizing short-term profits over long-term security.

“When targets are met, banks may present favourable reports to their shareholders and the market, but the risks they took to achieve those targets often go unnoticed,” he said, warning that this approach leaves institutions vulnerable to fraudulent activities.

Kumadoe further suggested that the leadership and ownership structures of banks play a significant role in how fraud is managed — or ignored. He called for more scrutiny of the culture at the top of these institutions, pointing out that when leaders prioritize profits over compliance and ethics, it trickles down to the entire organization.

He also noted the potential for corruption within the supervisory bodies, including auditors from the Bank of Ghana, which can undermine the effectiveness of fraud prevention measures. “Some supervisors might turn a blind eye, especially when they’re incentivized to overlook issues, and that undermines the whole system,” Kumadoe remarked.

A key area of financial fraud that Kumadoe highlighted was loan fraud. According to him, some banks grant loans, but when borrowers refuse to repay, the financial impact can be devastating.

“Loan fraud is becoming a major issue, with many borrowers taking loans and failing to repay, causing significant financial losses for banks,” he noted. This type of fraud, he argued, is contributing significantly to the rising financial losses in the sector.

In discussing possible solutions, Mr. Kumadoe stressed the need for collaboration between different departments within banks. He advocated for greater integration between compliance units, financial crime teams, and audit departments, explaining that this would help ensure that internal processes are adhered to, reducing opportunities for fraud.

“If these units work together closely, breaches in the system can be identified and addressed quickly,” he advised.

Kumadoe also emphasized the importance of conducting thorough background checks on both employees and customers. He argued that banks should not rely solely on external vetting agencies but should take responsibility for their own due diligence processes.

“By doing their own checks, banks can ensure that both their employees and customers meet the necessary standards of integrity,” he said.

Additionally, with the growing threat of online fraud, Kumadoe recommended that banks streamline their digital platforms to better monitor customer activity and detect fraud in real-time.

He noted that as banking moves more into the digital space, the risks increase, and without strong monitoring systems in place, online fraud will continue to grow.

Mr Kumadoe stressed that addressing loan fraud, tightening internal controls, improving the vetting process for employees and customers, and enhancing digital security are essential steps for Ghana’s banks to reduce financial losses due to fraud. He also called for more transparency and accountability at the leadership level, urging banks to prioritize long-term security over short-term gains. “If we don’t address these systemic issues, we will continue to see more cases of fraud and greater financial losses,” he warned.