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Cedric E. Stephens Non-AI ideas about local fraud risks

DATA OBTAINED from the Counter-Terrorism and Organised Crime (CTOC) Division of the police force over the last five years, according to this newspaper, indicates that on average, there is at least one incidence of major fraud every day.

The losses amount to nearly $4 million. Except for 2020, the number of reported losses is increasing yearly. They have grown from 551 in 2018 to 789 last year, a 43 per cent increase.

The value of losses from fraud in the previous five years is equivalent to about 10 per cent of the Government’s $75.3 billion capital budget for 2023-2024. These are alarming numbers. The striking thing about these estimates is that they are probably below the actual losses.

The Pew Research Center is a United States (US) fact tank. It informs the public about issues, attitudes, and trends. It cited a Bureau of Justice Statistics 2019 study, which found that only four in 10 and one in three violent and household property crimes, respectively, are reported to the authorities.

If these metrics were to be applied to the local numbers, one would get a better sense of the scale of Jamaica’s fraud problem. It is a multibillion-dollar criminal enterprise with a low probability of ending up behind bars.

Pew reported that “when it comes to property crime, law enforcement agencies cleared 18.4 per cent of larcenies/thefts, 14.1 per cent of burglaries and 13.8 per cent of motor vehicle thefts.”

I assume the local cleared-up rate for fraud is lower than in the US.

Seprod Group CEO Richard Pandohie, according to The Jamaica Observer, recently “expressed deep disappointment” at the $160-million fraud that resulted in the arrest of 17 employees.

“It was gutting and disappointing beyond belief,” he said.

Pandohie’s comments were made after Deputy Commissioner of Police Fitz Bailey, announced the arrests following CTOC operations in Clarendon, St Catherine, and the Corporate Area.

By now, Mr Pandohie will have viewed the fraud event as preventable. The warehouse fire disrupted the company’s operations, and dishonest employees colluded to exploit weaknesses in internal controls. These were probably among the things that contributed to the loss.

It would be instructive to conduct an internal review to determine if red flags were overlooked during the recruitment of the persons alleged to have participated in the fraud.

Two years ago, months before the Seprod fire, I authored a paper for an influential local non-life insurance community member. In hindsight, one paragraph was prophetic. It read: “According to the US Association of Certified Fraud Examiners (ACFE) in its latest COVID-19 benchmarking report, 77 per cent of members say they have seen an increase in fraud since August 2020, with one-third noting that the rise has been significant.

“Findings also strongly suggest that this uptick will continue as 92 per cent of those polled expect a rise in fraud over the next 12 months – and half believe the increase will be substantial. What is more, when it comes to preventing, detecting, and investigating fraud in the wake of COVID-19, risk managers overwhelmingly say that all three of these key activities are more difficult to oversee now than previously.”

Unfortunately, the executive failed to connect the dots when the fire occurred in October 2021, destroying 100,000 square feet of the food-distribution facilities at Facey Commodity Company Limited, a Seprod subsidiary. (I am still awaiting a response about the paper from the CEO).

None of the people in The Gleaner’s ‘Fraud Spike’ article offered constructive ideas to ease the problem. Free online courses to prevent fraud in business are available. There is also valuable information in blogs linked to reputable brands.

Eric Blot, a director of KPMG Switzerland, writes: “During times of crisis, the number of cases of employee fraud and misconduct grows substantially. Investing in due diligence is critical to mitigating the risks and identifying fraud. Periodically screening and vetting existing employees can protect and enhance your organisation’s overall security.

“Effective background checks for employees and candidates are essential to reducing insider fraud or misconduct risk. Even though we want to believe that most people conduct their work conscientiously and honestly, some of the most devastating threats come from inside an organisation,” he added. “The COVID-19 crisis will lead to a rise in fraud risk and the erosion of trust between employees and employers. Depending on an employee’s position and the nature of the business, companies face various risks, including financial loss, money laundering, misappropriation of assets, operational risks, and reputational damage.”

For persons who want information about fraud that is more culturally appropriate, I suggest they talk to the folks at the Jamaica Public Service Company Ltd, the National Water Commission, and the island’s two biggest commercial banks. My January 29, 2023, piece, ‘Tackling Financial Fraud Risks’, offers information about insurance solutions and increases awareness about employee dishonesty risks – from a non-AI source!

– Cedric E. Stephens provides free counsel and advice on managing risks and insurance. If you need free information counsel to help you solve a problem, write to The Business Editor at Or contact Mr Stephens directly. Letters and e-mails will be edited for clarity and length.

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