Analysis of fraud in Uganda's banking industry

Abstract

The main objective of this study was to establish the nature, extent, causes of and mechanisms to combat fraud in Uganda’s Banking Industry. The study adopted both descriptive and quantitative techniques involving self-administered questionnaire to Managers of two commercial banks with a combined branch network of 71 branches. The findings show that the banking industry experiences various forms of fraud. The most common ones are ATM Card related. Forgeries of Customers signatures and documents, Counterfeit Notes, Cheque fraud, Cash suppressions, Account Opening, Deposit Slip Scam and Fraudulent loan applications. Many cases of successful fraud were a result of both Staff and Customer negligence, failed internal processes, staff greed and poor internal controls. There was a noted growing trend of fraudulent activity that calls for action to combat bank fraud before the situation worsens. Majority of fraud occurrences (81 .41%) were found to be externally perpetrated. Employee fraud stood at 15.24% while staff collusion with customers stood at 3.35%. Unwillingness to disclose fraud was encountered citing confidentiality issues. However, the move by banks to engage Police and pursue legal action and the evidence of disciplinary action against staff show some appetite by banks to combat fraud. Employee involvement in abetting fraud is an issue of concern as employees have access to customer information and system access at their disposal. Banks should therefore carry out proper background checks on staff at the point of recruitment. Staff training and coaching are key to the detection and control of bank fraud. Customer awareness campaigns are also vital to curb fraud incidences. Other recommendations include the Regulator and the Uganda Bankers’ Association enforcing fraud documentation and reporting. Banks should also spend more time in assessing the likelihood of fraud occurrence and developing prevention and control mechanisms.