Nigerian bank officials charged with $40m fraud, and the dark side of 'Africa Rising'

The rosy stories create high expectations for growth, which often do not match the reality on the ground.

NIGERIA’S Economic and Financial Crimes Commission (EFCC) said it has charged six central bank officials with fraud in an 8 billion naira ($40.1 million) currency scam.

Sixteen commercial bankers were also charged with conspiring with the Central Bank of Nigeria regional executives in a “mega scam involving the theft and recirculation of defaced and mutilated currencies,” the Abuja-based EFCC said in a statement dated Sunday on its website. 

The suspects will appear at the Federal High Court in the southwest city of Ibadan this week.

Instead of destroying defaced local currency, the officials substituted it with newspapers cut into the size of naira notes, the EFCC said. The fraud has been partly to blame for the failure of monetary policy to check inflationary pressure for years, according to the agency.

The latest KPMG Africa Fraud Barometer shows that government in Africa is the sector hardest hit by fraud and corruption, with at least 30% of reported cases involving siphoning of public funds or government property.

But the report indicates that employees in the private sector perpetrate even more fraud than government officials, being responsible for 22% of reported cases compared to 14% for government officials.

However, because the survey only looked at cases reported in the media, this does not necessarily mean private sector employees are more corrupt than government officials; it could simply be that government officials make access to their misdeeds harder to cover  thus the cases never come into the public sphere.

Syndicates and known criminals are responsible for 23% of cases.

Committing crime to meet targets

After fraud and misrepresentation, the second most-common unethical practice in Africa was misappropriation and theft (14%), followed by counterfeit and forgery (13%).

South Africa was responsible for the highest number of reported cases (33% of the total 348 cases reported in the media), KPMG indicates, followed by Nigeria, Kenya and Zimbabwe.

A separate 2015 survey of fraud in emerging markets by Ernst & Young titled “Fraud and corruption: the easy option for growth?” found a high acceptance for fraud as a normal part of business in emerging markets, in order to meet sales targets and keep up with the competition.

The survey interviewed 100 companies each in Kenya, Nigeria and South Africa; 16% of respondents said requesting suppliers to delay invoicing can be justified, 24% said revenues being recorded before they should be to meet short-term financial targets can be justified, and 39% said negotiating retrospective rebates, bonuses or discounts from suppliers can be justified.

By contrast, just 6-9% of management in developed markets tolerated these fraudulent practices.

It’s partly a result of the optimism surrounding Africa’s economic prospects, with daily narratives about Africa Rising or its burgeoning middle class that is touted as the last frontier for consumer markets.

The rosy stories create high expectations for growth, which often do not match the reality on the ground – 60% of managers in Africa say that slower-than-expected growth is the biggest challenge to their business, and a similar percentage say that they are under intense pressure to increase revenue.

But in most cases, targets are unachievable –if a clear-eyed, objective assessment of the fundamentals is considered – and continued pressure “could result in actions that expose businesses to significant fraud and bribery risks.”

Corruption nearly universal

A fortnight ago, Tiger Brands Ltd., Africa’s largest food producer, announced a $9 million decline in first half earnings partly as a result of pre-invoicing – fraudulently booking future revenue as current revenue – and manipulation of profits in its Kenya unit, in order to achieve operational targets.

The company fired the managing director of the Kenya unit called Tiger Haco Brands Geoffrey Kiarie, with Tiger CEO Peter Matlare saying three other executives in Kenya may face civil charges.

The country’s accounting professional body is also opening investigations into audit firm PricewaterhouseCoopers (PwC) over its “failure to detect the huge and illegal financial adjustments.”

But the survey shows that such massaging of results is far from unusual – more than four out of ten companies in Nigeria, South Africa and Kenya say that companies “often” report financial performance better than it is.

In Kenya, the perception of corruption in the corporate sector is nearly universal – nine out of ten respondents say bribery and corrupt practices “happen widely”; the same sentiments were shared by 78% of South African and 72% of Nigerian respondents.

Some employees see compliance as a burden that can damage competitiveness. One-fifth of respondents, for example, state that following anti-corruption policies very closely would harm competitiveness.

But many of the key results tell a different story. Good compliance and growth appear to go hand in hand.

The results also show that businesses that have experienced revenue growth in the last two years are more likely to have effective compliance policies and procedures in place, and are more likely to be seen by their customers as ethical.

Additional reporting by Emele Onu, Bloomberg


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