Tue | Mar 21, 2023

The enemy within

Forensic accountant Karen Bailey wants companies, Gov’t to fortify systems against fraud, scams

Published:Sunday | November 6, 2022 | 12:10 AMErica Virtue - Senior Gleaner Writer
Bailey is urging companies to invest in proper risk-management initiatives.
Bailey is urging companies to invest in proper risk-management initiatives.
“Most of the fraud I have investigated, it’s internal people who are involved – even among junior staff, who see that a system is lax and exploit the situation”: fraud examiner Karen Bailey.
“Most of the fraud I have investigated, it’s internal people who are involved – even among junior staff, who see that a system is lax and exploit the situation”: fraud examiner Karen Bailey.
Jamaica-born British fraud examiner Karen Bailey.
Jamaica-born British fraud examiner Karen Bailey.

Jamaica-born British fraud examiner Karen Bailey believes Jamaica needs to enact more far-reaching legislation to counter identity theft, scams and a range of financial crimes, as it is still unprepared for the slew of ills that can be spawned in a digitised society.

Jamaica will be in serious trouble if and when “international organised financial crime fraudsters step into this country”, she said bluntly as she sat down with The Sunday Gleaner recently.

“It is going to implode. While we must follow where the world is going, we must have world-class anti-fraud security systems. We don’t have it. The bubble is going to burst,” the forensic accountant and certified fraud examiner said flatly.

While mulling over career options in her early years, Bailey, who also has a law degree, settled on accounting. By the late 1990s when she became aware of the growingly popular field of forensic accounting, she knew she had found her professional passion.

“I decided that’s what I wanted to do and I went back to London School of Economics and did my master’s in criminology and then started to practise as a forensic accountant for the last 16 years,” she told The Sunday Gleaner.

Bailey has worked with clients in several jurisdictions, including in the United States, The Bahamas, Switzerland, and Canada, as well as “extension work” out of some countries in Africa.

Strongly influenced by her mom, who encouraged her children to always do good deeds and warned especially against questionable actions, especially stealing, Bailey keeps tabs on every financial transaction she undertook. She is also encouraging individuals to be super vigilant in checking their bills, too, as in many instances, receipts reflect purchases not made, noting that she was a recent victim of such a ruse in Jamaica.

“Fraud is the misrepresenting of fact with the intention to cause harm,” Bailey said laying down a simple textbook description.

She noted that corruption and collusion are critical parts of the whole that is fraud, but intent is also important to the process.

Bailey said there are myriad opportunities for fraud daily, including when someone seeks information from customer service representatives. With one’s date of birth, mother’s maiden name, current place of work, job title and address among frequently asked questions in such interactions, Bailey believes that if the representatives are among shadowy operatives in cyberspace, the customer would have provided enough information for parallel accounts to be created.

She believes financial institutions must immediately ramp up internal security systems.

“So the customer service agent may ask you something like, ‘What is the fifth letter of your password?’. Nothing else is required and nothing else is known about the individual,” she told The Sunday Gleaner during an interview at her St Mary home.

Jamaica lost in excess of J$12 billion to cybercrime in 2016 alone with more than 200 cases reported to the police. The losses are believed to have ballooned significantly over the years, but law enforcement sources note that due to under-reporting, it is hard to quantify. Full disclosure might not be forthcoming because of the possible reputational damage to those most affected, including institutions not wanting their clients to be fearful after discovering how much they lose annually to theft.

The Bank of Jamaica (BOJ) Financial Stability Report 2021, which was published in March of this year, noted that between January 2018 and October 2021, bank fraud losses averaged $1 billion per annum, representing approximately 0.05 per cent of the country’s gross domestic product.

“Annual bank fraud losses peaked at $1.3 billion in 2019, [some] 5.5 per cent higher than the losses of $1.2 billion in 2018. However, fraud losses fell by a substantive 37.3 per cent to $0.8 billion in 2020 and by a further 24.6 per cent to $0.6 billion in 2021,” the report noted.

It added that over the period, debit and credit card fraud was the most prevalent, accounting for 84.6 per cent ($3.3 billion) of fraud losses. The incidents were also largely concentrated among a few banks.

Fraudulent cheques, internal (occupational) fraud, Internet banking fraud, fraudulent loans and wire transfers and other frauds were also seen.

“For the December 2021 quarter, those persons between 51 and 70 years old were the main victims of credit card fraud. Persons between 18 and 34 years old were largely targeted for debit card fraud,” the report said.

The BOJ noted that last year saw an increase in Internet banking fraud at a few banks on account of SIM swap scams, whereby fraudsters sought to gain access to an institution’s online platform via mobile numbers tied to customers’ accounts.

Bank fraud losses, it added, accounted for a small portion of institutional pre-tax profits for most deposit-taking institutions.

“Impairment to institutional profits accounted for an average 3.3 per cent of profits in 2019, marginally above the impact of 3.2 per cent for 2018. ... In 2020, the ratio of fraud losses to pre-tax profits declined by 1.3 percentage points to 1.9 per cent and moderated further to 1.8 per cent by end-October 202,” the report noted.


According to Bailey, a significant amount of financial crimes are perpetrated by employees.

“Insider jobs are where most frauds lie [globally] because you need certain information to perpetuate it. In terms of protection, the question is: What is happening internally? How are customers being protected? How are they (institutions) accounting for the staff handling people’s money and [do they] have authority to move people’s money around? That is where I think the major problem is, and it’s not Jamaica-centric; it’s worldwide,” she stressed.

“Most of the fraud I have investigated, it’s internal people who are involved – even among junior staff, who see that a system is lax and exploit the situation,” she explained.

Bailey said red flags must be triggered in institutions when salaries cannot maintain the lifestyle of some employees, irrespective of which level they are at. She suggested that detailed routine investigations be carried out on all employees, especially those working in financial entities.

The ability of staff at financial institutions to change passwords on customers’ accounts or transfer monies between accounts without it being noticed must be of major concern, Bailey said.

Fraud risk factors common in financial institutions also include skimming, a phenomenon Bailey said is widespread worldwide and involves a dollar or small sums taken from the accounts of unsuspecting clients, which eventually adds up to huge sums. Dormant accounts are particularly vulnerable to such schemes and must be properly monitored, the certified fraud examiner stressed.

“In the United Kingdom, if your account is dormant, you still get bank statements and you get the warning that it will be closed by a certain time, and you are to indicate where funds are to be transferred,” Bailey noted. “My experience in Jamaica is that you hear that your account is dormant when you go to the bank. The lack of monitoring of accounts such as these provide opportunities for fraud. Fraud cannot operate without opportunity.”

“Crime in the streets is the equivalent of crime in the suites, except we are not out there with guns and mask holding up people. It’s the same thing. Someone will see someone living big and do not know that that [lifestyle] is the proceeds for crime in the suites, so that’s why any crime plan being considered in Jamaica has to consider fraud,” Bailey told The Sunday Gleaner.

It is estimated that five per cent of gross profits worldwide are lost to fraud. And Bailey said that while large economies and corporations can absorb that loss, it can be devastating to small and medium-size economies and businesses. Plugging that hole in Jamaica could shore up the ability to pay better salaries and provide better services.

And as the nature of fraud changes regularly, she is urging companies to invest in proper risk-management initiatives.

Cultural nuances, collusion and personal benefits have allowed individuals to commit fraud and many times, someone knows but does not speak out.

“How have you taken into consideration if management can override systems? ... Most of the frauds that are discovered are [at the] supervisor level and up; it’s not the small guy. The small guy may steal the little petty cash, but large-scale fraud is at the management levels and individuals who are in place for a long time and know the system,” Bailey pointed out.

“Another thing is the respect for authority. We are junior staff and we know that something is going on with a manager, but we shut up,” she said, pointing to another factor leading to the perpetuation of fraud.

Bailey, who is currently engaged in teaching statutory auditors how to spot fraud, is challenging auditors to exhibit a healthy dose of professional scepticism.


That children believe scamming to be a genuine career is no laughing matter for Bailey, and she believes it is incumbent on the nation’s leaders to counter pro-scamming messages in the public space with public education. It cannot just be left to Uncle Sam to collar Jamaicans, who do not see local laws as much of a deterrent.

The Government can also do more in this fight, she insisted.

The Parliament should consider changes to existing laws which allow fraudsters to spend the proceeds of stolen property without triggering automatic restitution to victims on conviction, Bailey said. Where funds cannot be recovered, longer jail sentences should apply. Conversely, discounted sentences can be considered for restitution.

Jamaica should also enact a Fraud Act, which should go hand in hand with the Proceeds of Crime Act, suggested Bailey, to help the country better deal with corporate financial crimes.

The Government should also include fraud recognition as part of civics lessons, teaching young children to recognise wrongdoing, said Bailey, noting that children are often targeted in getting to their parents.