Managing the Risk of Fraud in Mobile Money

Managing the Risk of Fraud in Mobile Money

Let me illustrate the theme of my expose by an incident that happened to me at a Harare restaurant recently. After my meal I thanked the waitress and asked for the bill, showing her my phone to indicate my mode of payment. Instead of bringing a printed bill she asked me to pay not by way of the merchant code that was prominently displayed. “There’s a problem with that code” she said politely. “You can use this number”. It was only after the transaction that I realised what had happened: I had paid the waitress or her accomplice for the meal. Having earlier informed the waitress of my being in a hurry, she knew I had neither time nor mood to raise a fuss with management.

Risk management is a key component to the commercial success of any business. Effective risk management underlies sustainable commercial activity, including m-commerce, because it protects two key commercial assets: revenue and reputation. Mobile operators are familiar with managing risks on their side of the business and those that have launched mobile money are aware that mobile money carries different kinds of risk –particularly the risk of fraud.

Managing risk in mobile money is a challenging task, especially when it comes to the risk of fraud, which not only results in financial loss to the business but also damages the reputation of the service to the customer. As such, mitigating the risk of fraud is a primary objective in a robust risk management strategy.

Internal Control

Any person in business understands that as soon as they move from working alone to employing someone else there has to be in place some form of ensuring that what the other person does or gets as part of their work does indeed benefit the business. In other words, every business greater than that of sole operator has to have some form of internal control. This is the means by which you marshal your enterprise resources to achieve your objectives.

Just as in any worthwhile undertaking, an appropriate system of internal control should neither be costly nor onerous. Whatever shape or form your system, at the end of the day, it should help you to exploit your opportunities as well as manage the risks of doing the things you do. It is desirable to ask oneself a few questions from time to time: Is my system able to detect errors and fraud in sufficient time for me to take appropriate action? Can I quantify and qualify the effectiveness of my controls? Do I have just enough controls – not too many and not too few? What can go wrong? What can I do to mitigate what can go wrong and what should I do to promote what can go right? In other words, regularly reviewing your operations.

Fraud Risk
One of the major risks facing any business in Zimbabwe today is that of fraud. I am using the term here to denote a wide array of thieving and various deceitful acts by both employees (internal fraud) and outsiders, including suppliers and customers (external fraud). Accountants classify losses from theft rather euphemistically as part of “inventory shrinkage.” But everyone knows what that usually refers to: lost revenue due to theft.

My cited restaurant experience is an example of an internal fraud. In that case it is likely that the waitress and chef were in it together. It follows therefore that fraud is a risk that should feature prominently in one’s regular reviewing of operations. A fraud vulnerability review (also known as fraud risk assessment) follows the pretence of “prevention is better than cure”. The process of risk analysis proceeds from threat assessment to threat evaluation to the selection of countermeasures designed to contain or prevent that risk. Many, if not most, risks are generic; they are present in any environment. In my example, the waitress could have pocketed the cash had I paid in cash. In general effective internal controls operate across operational areas. For instance, effective receipting will depend on an effective billing system.

Questions to consider when identifying and assessing operational risks in mobile money

• What are the most complex parts of the process?
• Where are the most vulnerable bridges or links between interconnected systems?
• Are there any large value, high-risk transactions that happen regularly?
• Are there any authentication mechanisms that are easily faked?
• How could someone abuse the system?
• How could someone disrupt operations?
• What frauds are prevalent in the country apart from mobile money? How common are they?
• What is the general level of criminal activity and the strength of law enforcement in the country?
• What is the likelihood of the risk?
• What is the potential impact on the business (financial and reputational)?

Using controls to mitigate risk in mobile money

Controls in mobile money are either preventive, which reduce the likelihood of fraudulent activity, or detective, which monitor and report trends or activities that have already happened. Below I have outlined the key controls as they affect most mobile money deployments. While this is not a comprehensive list, each of these controls addresses at least one specific risk associated with mobile money. For example, controlling access rights helps to reduce the risk of information manipulation, while monitoring and analysing suspicious transactions increases the visibility of fraudulent activity.

Examples of controls in mobile money and in general

• Control access rights to protect transaction data integrity, e.g. invoicing in a computer system
• Segregation of duties and independent checks to reduce error or fraud on high risk procedures. In general, the functions of (i) initiating a transaction, (ii) approving a transaction, (iii) executing a transaction, (iv) recording a transaction, (v) taking custody of the assets, and (vi) reporting on the transactions, should be divided between at least two people.
• Threshold limits to reduce risk associated with the computer system.
• Customer awareness campaigns to increase customer education and protection, e.g. a notice below the biller code to pay only via that code and none else
• Employee training on acceptable practices and conditions as well as roles and responsibilities
• Communication and information sharing with employees. Many businesses are going through hard times and payroll debts are not uncommon. Where employees are not paid in full silence, ducking and diving does not help the situation.
• Monitor and analyse suspicious activity
• Monitor activity on system access – does system access tally with historical business activity
• Create robust customer recourse and escalation procedures – customers can be a good internal control resource
• SMS alerts to customers, where possible
• Management checks and review

A thriving business environment is fodder to a thriving community and vice versa. I will be sharing specific incidents in future. Please help the SME in Zimbabwe – and other businesses for that matter – by sharing your experiences with me ( and/or leaving your comments below.

Caleb Mutsumba RPA, CFE
Forensic Auditor
Mobile/WhatsApp: +263 772 466540/ +263 712 620287
Skype: caleb.mutsumba


What do you think? What strategies do you, or your company, use to manage the risk of fraud and error in your organisation? Are you primarily proactive or reactive in your approach to risk management? Share your experience in the Comment box below.

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