Africa needs solid education to fight fraud

When corruption thrives and dirty money is kept in offshore accounts, Africa’s high levels of poverty remain. How do we reverse the trend? The solution lies in reviving countries’ primary educational standards and increasing fraud awareness and education.

Fraud is costly in Africa. According to the ACFE’s 2018 Report to the Nations, median losses for sub-Saharan Africa organizations are $90,000. The study finds corruption (49 percent), and cash on hand (21 percent), as the leading types of fraud reported in sub-Saharan Africa cases. The study also finds that the largest percentage of sub-Saharan African frauds are committed by employees (48 percent) with a median loss of $55,000, then managers (36 percent) with a median loss of $73,000, followed by owners/executives (14 percent) with a median loss of nearly $2,716,000.

In the 2017 book, Fate of the Nation: Three Scenarios for South Africa’s Future, the author, Jakkie Cilliers, explains that although other developing countries might experience the same levels of median loss of a single occupational fraud as in Africa, those non-African countries plough the illegal proceeds back into the economy rather than stash them offshore.

Corruption not only increases poverty, it reinforces it. According to the Institute for Security Studies (ISS), African countries remain poor as their leaders put their money in overseas banks and buy luxury real estate abroad. The solution lies in anti-fraud education and promoting ethics from the family up to national government. (See The fight against corruption in Africa is on, by Liesl Louw-Vaudran, Aug. 18, 2017.)

Corruption as the single biggest threat to Africa’s continuous poverty

Countries remain poor for many reasons. Most are related to historical legacies and geography, corrupt political elites, and weak institutional and educational systems.

World Bank estimates in 2015 show an encouraging trend of a decrease of impoverished Africans. The share of poor Africans fell from 56 percent in 1990 to 43 percent in 2012. However, with high population growth there were still 330 million poor Africans. Poverty continues to plague the African continent. (See Africa’s Pulse: An analysis of issues shaping Africa’s economic future, World Bank Group, October 2015, volume 12.)

African poverty is mostly confined to sub-Saharan countries where poverty decline has been slowest. Here high poverty is associated with high inequality. According to a March 2016 World Bank Report “Poverty in a Rising Africa,” seven out of the 10 most unequal countries in the world are in southern Africa.

Geographical location, education and demographics are the key drivers of inequality. (See the blog post, Inequality of opportunity in Sub-Saharan Africa, by Paolo Brunori, Flaviana Palmisano and Vito Peragine, World Bank Group, Feb. 1, 2016.)

Among these factors, education seems critical for reducing inequality and poverty. According to “Africa’s Pulse,” progress in “adult literacy has been slow and masks substantial regional variation. More than half the population is illiterate in seven countries, almost all in West Africa.”

African countries need to revive their primary educational standards. This is critical as intergenerational mobility — in terms of education and occupation — is still low and perpetuates inequality and poverty.

Another critical factor in Africa’s poverty is corruption. The group of sub-Saharan African countries is one of the top regions in the world with the highest perceived corruption as measured both by Transparency International (TI) and the World Bank.

According to the TI Corruption Perceptions Index 2017, the worst performing regions are Sub-Saharan Africa, Eastern Europe and Central Asia. According to the TI Corruption Perceptions Index 2015, in Angola, 70 percent of the population lives on less than $2 a day.

However, Isabel dos Santos — dubbed Africa’s youngest billionaire — made her $3 billion fortune from the national diamond and telecommunications industry in Angola. Incidentally, she’s also the president’s daughter. Possible corruption at play? (See Daddy’s Girl: How an African ‘Princess’ Banked $3 Billion In A Country Living On $2 A Day, by Kerry A. Dolan, Forbes, Aug. 14, 2013.)

A 2017 Global Financial Integrity (GFI) report found that outflows from sub-Saharan Africa grew to about $36 billion to $69 billion by 2014. According to the GFI report, sub-Saharan Africa ranked highest in illicit outflows — ranging from 5.3 percent to 9.9 percent of total trade in 2014. In contrast, sub-Saharan Africa ranked lowest among the major regions for measurable inflow propensity for that year making it the net loser in illicit capital flight. These capital losses could be used for promoting development, providing jobs, improving tax collection and providing funds for education and other public services.

Obviously, geography can’t be changed, so fighting corruption and improving institutional and educational systems are the keys to reducing poverty in Africa.

Encouraging signs

It’s not all doom and gloom. Fighting corruption involves investigating critical factors and increasing awareness. While the former involves measures to reduce poverty, the latter offers great opportunities to educate people against fraud. Substantial improvements have recently been made on this front.

In addition to the African Union (AU) dubbing 2018 as the year for “Winning the Fight Against Corruption: A Sustainable Path to Africa’s Transformation” (see The Daily Maverick newspaper article, ISS Today: The fight against corruption in Africa is on, Aug. 18, 2017), African countries are developing numerous fraud awareness activities and anti-fraud education programs.

So far, one African university is participating in the ACFE Anti-Fraud Education Partnership: Saint Monica University in Cameroon, which offers an undergraduate course on the introduction to fraud examination.

Other universities educate students on the basic elements of fraud prevention, detection and examination. South Africa is particularly active. For example, the University of Pretoria offers a course on fraud risk management, which provides students with an understanding of fraud and corruption. The course covers:

• The basics of criminology and the extent of fraud.
• The extent of fraud and organized crime.
• Introduction to law and legal concepts.
• Various acts and statutes of value to fight fraud effectively.
• Cash fraud schemes that employees can perpetrate.
• How suppliers of goods and services can perpetrate procurement and contract fraud schemes, including recipients of government benefits through identity fraud.
• Risk factors that can lead to fraud or might indicate that it’s occurring.
• Preventive measures.
• Applied investigative techniques when the possibility of fraud is identified.

The university also offers a number of short courses including:

• Law for Commercial Forensic Practitioners.
• Money Laundering Detection and Investigation.
• Investigation of Financial Crime.
• Investigation and Management of Cyber and Electronic Crime.
• Investigation of Civil Disputes.
• Economic Crime Schemes.
• Interviewing Skills for Fraud Examiners and Auditors.
• Basic Financial Investigation. 

Thank you

I’ve had the pleasure of serving as the vice chair of the ACFE Higher Education Advisory Committee for the past two years and writing the “Fraud EDge” column. Hossam El-Shaffei, CFE, CA, CCSA, the committee’s newly elected vice chair, will be the next author of this column. I am looking forward to reading Hossam’s upcoming columns!

When writing “Fraud EDge,” I wanted to shed some light on the anti-fraud education efforts in colleges and universities beyond the U.S. and bring academia and practitioners closer together. Financial crime knows no borders. Academia needs to tailor programs that’ll train future fraud fighters to work together on transnational cases by understanding differences in corporate and compliance regulations, as well as in law enforcement agencies, among other anti-fraud issues. This was my motivation for researching European and African academic programs. I know the new “Fraud EDge” columnist will continue this effort and inform us of other global programs and participants in the ACFE Anti-Fraud Education Partnership.

Sandra Damijan, Ph.D., CFE, is lecturer and program coordinator of the Corporate Integrity Academy at the Faculty of Economics, University of Ljubljana, Slovenia and leads forensic services at Grant Thornton Western Balkans region. Damijan, the former ACFE Higher Education Advisory Committee vice chair, is the former investigator at the Slovenian Anti-Corruption Commission. Contact her at sandra.damijan@ef.uni-lj.si.