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Kenya: KPMG - Barometer Assesses Fraud Risk When Investing in Africa
Source: CIO East Africa (Nairobi)
Source Date: Thursday, November 22, 2012
Focus: Institution and HR Management
Country: Kenya
Created: Nov 22, 2012

KPMG has released the findings of the second Africa Fraud Barometer. The initiative was launched in April 2012 and is an early stage effort to measure fraud on the African continent and expose the risk of fraud for companies in their day-to-day operations. According to the tool, reported cases of fraud decreased from 520 in the second half of 2011 to 503 cases in the first half of 2012. In the same period, the value of fraud decreased from US$3.3 billion to US$ 2 billion. Nigeria, Kenya, Zimbabwe and South Africa make up 74% of all fraud cases reported in Africa. While fewer cases are reported in South Africa, the overall value of these cases is far greater in Nigeria. The Africa Fraud Barometer has been developed to provide a bigger picture of fraud prevalence on the African continent. "This is only the second barometer we are publishing, but we have noticed a decline both in terms of reported fraud cases and their monetary value. We see this as a positive trend," says Petrus Marais, KPMG's Global Leader of Forensics, who developed the barometer. "There is an increasing interest in Africa as an investment destination, but the continent struggles with a rather negative image. We are providing an analysis of fraud profiles in individual African countries to foreign investors since a generic approach to assessing fraud risks on the continent is not possible. The overriding point is that investors need to assess the prevailing environment in each country." The Barometer distinguishes between the number of reported fraud cases, type of perpetrators, victims of fraud, type of fraud, countries and targeted industries. Data currently available captures the entire year of 2011 and the first half of 2012. To obtain some indications of trends, findings from the first six months of 2012 were compared to those ones of the second half of 2011. This updated KPMG Fraud Barometer shows that fraud and misrepresentation had the highest reported cases at 37%, a decrease of 10% from the previous six months. Most fraud is committed by government officials (18%), followed by business people (15%) and employees (14%). As in the previous reporting period, government at 38% is still hardest hit by fraud and corruption, an increase of 1%. "We have identified government as a high risk area both in terms of perpetrator and victim. We therefore added a new perpetrator category of 'government officials'. It would seem from the statistic that government is under attack from its own people. Elsewhere in the world similar surveys show that companies are under attack from management more than employees," says Marais. "We are asking ourselves about the extent of prosecution of fraudulent government officials. This would depend on whether the respective legislation to prosecute fraud is in place and the capacity to implement the law exists. Cultural acceptability of fraud is also an important consideration." In the private sector, multinationals are increasingly exploring ways of addressing internal fraudulent activities. Since international and local legislation has been put into place, the consequences for companies are far greater than ever before. In the East African region, Kenya in standing out with 7.75% of reported fraud cases, well ahead of Uganda (2.98%) and Tanzania (2.78%). Most fraud in Kenya targets government and financial sectors as elsewhere on the continent. "Fraud and misappropriation is high, as is bribery and corruption. But we believe that a lot of cases are never reported," says William Oelofse, KPMG's East Africa Director responsible for Forensic Services. "People are reluctant to report fraud since they do not have faith in the system from a prosecution and conviction perspective and do not want to jeopardize their businesses and brands. But there is a lot more reporting than in the past." Kenya has recently become more serious about fraud prevention. The conviction of former Tourism permanent secretary and Kenya Tourism Board (KTB) ex-managing director was hailed as a major success. Both government officials were convicted of conspiracy to defraud the ministry of Sh8.4 million (about US$100,000). They received heavy jail sentences and fines for misappropriating public funds. "As for the other countries in the region, fraud cases in Uganda and Tanzania should also be high but people do not seem to be comfortable reporting cases," says Oelofse. "A positive example is Rwanda where fraud has dropped to an all-time low." The data for the Africa Fraud Barometer is compiled by analysing available news articles and reviewing fraud cases from designated databases. Updates are disseminated by press release every six months. "It is too early to determine whether the positive trend will be sustained, but over time we are expecting to get a stronger picture of the different types of fraud. This will allow us to provide better advice to potential investors which will economically benefit the continent in the long term," concludes Marais.
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