25 November 2012

Zimbabwe: A Breeding Ground for Fraudsters

ZIMBABWE is one of the four countries in Africa that contributed the bulk of fraud cases valued at US$2 billion in the first half of the year, according to a latest report released by KPMG, one of the leading global auditing firms.

The report -- KPMG Africa Fraud Barometer -- said Nigeria, Kenya, Zimbabwe and South Africa contributed 74% of all fraud cases in Africa.

The findings are a slap in the face of government's efforts to lure investors and help rebuild the economy, poised for a third consecutive year of growth after a decade of recession.

The government's medium-term plan projects that foreign direct investment would contribute 20% to the country's Gross Domestic Product in 2015 up from the current 4%.

In an analysis on the increase in fraud cases in Zimbabwe, Emilia Chisango, partner at KPMG Zimbabwe, said fraud had been increasing, especially after the dollarisation of the economy.

"With dollarisation, the basic economic fundamentals started to apply, resulting in significantly reduced income streams for certain classes of the society who were engaged mainly in the informal sector where returns were quite significant," Chisango said.

"Those with reduced sources of income tend to resort to fraudulent activities to sustain their lifestyles."

Chisango said as a result of the tight liquidity in the market, there had been significant mushrooming of fraudulent microfinance institutions that lend money at inflated interest rates and in turn accept deposits at attractive interest rates.

She said while there were a number of genuine such institutions, fraudsters had preyed on this by purporting to own microfinance institutions and offering rates which are significantly higher.

Once they collect a sizeable amount of deposits, they often disappear with it altogether.

"There are more fraudulent transactions involving individuals, though the ones where companies are affected tend to be of significantly higher values. We believe that the level of reported cases is actually indicative of the actual levels of fraud happening in the country," Chisango said.

Overall, the KPMG report showed 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%).

The report said in the period January 1 to June 30, 2012, a total of 503 cases were reported compared to 520 recorded in the same period last year.

The value of the reported cases during the period dropped to US$2 billion from US$3,3 billion recorded in the same period last year.

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