Factors Determining Consumer Fraud Reporting in Kenya

By Musamali, Rodgers A. | Research in Applied Economics, July 1, 2014 | Go to article overview

Factors Determining Consumer Fraud Reporting in Kenya


Musamali, Rodgers A., Research in Applied Economics


Abstract

This study examines the factors determining consumer fraud reporting in Kenya. It presents cross sectional evidence from data collected by the United Nations Office on Drugs and Crime and KIPPRA in 2009/2010. Descriptive results show that the most prevalent consumer fraud in Kenya is the proliferation of counterfeit goods. Using logit model, the study finds that consumer fraud reporting is affected by the type of the fraud where proliferation of counterfeit goods is important but negatively associated to reporting. This connotes that the more people are victimized, the more they fail to report to the police or other relevant authorities. This finding puts the fight against counterfeits into perspective perhaps underpinning the important attention it needs to continue receiving from the government and other relevant institutions. More awareness by the Anti-Counterfeit agency (ACA) and other stakeholders, improved ACA capacity and better collaboration will enhance reporting and aid curb trade in counterfeits. Additionally, perception of victims towards the police or other agencies positively impacts the reporting behavior of consumer fraud. Poor perception towards the police impacts consumer fraud reporting significantly which means improving how citizens perceive the police is important in fighting the consumer fraud problem. An improved perception will create confidence in the security systems and people will be willing to file reports about economic crimes such as consumer fraud. Initiatives of reforming the police to improve service delivery should be encouraged while also embracing their capacity building on consumer crimes to enhance reporting and response.

Keywords: Consumer Fraud, Reporting, Counterfeits, Kenya

(ProQuest: ... denotes formulae omitted.)

1. Background

Fraud is defined as knowing misrepresentation of the truth or concealment of material facts to induce the victim to act to their detriment (Holtfreter, et al 2005). In general a fraud is an act of dishonesty that leads to deceit of the victim with an intention of benefiting at the expense of the deceived. Fraud occurs in various forms which include but are not limited to: bank fraud that comprises of forged documents such as cheques, letters of credit, and letters of instruction; theft of cash and goods; procurement fraud that involves over invoicing and fabricated invoices; bribery; inaccuracy and non-declaration in customs and excise duty; tax evasion; forged cheques' signatures; false insurance claims; tender and contract fraud; electronic funds transfer fraud; and identity fraud. The effects of any form of fraud are detrimental and result into revenue loss both to government in form of taxes while individuals and corporations lose income.

Consumer fraud is a form of economic crime that involves deception of the victim with the promise of goods, services or other benefits that are non-existent or are grossly misrepresented (Holtfreter, et al 2005). There are various aspects of consumer fraud; according to the KPMG fraud survey of 2003 it includes; ATM theft, check and credit card fraud, fraudulent classification of merchandise for customers, fraudulent merchandise returns, and identity fraud. The Kenya crime victimization survey of 2010 categorizes consumer fraud into stolen or forged cheques which can also be referred to as financial fraud; fraudulent schemes such as pyramid schemes; payment of non-existent goods or services; and proliferation of counterfeit goods or provision of poor services.

Consumer fraud may occur in construction or repair work (mainly through substandard work); in hotels or restaurants (through poor services); in supermarkets, shops and chemists (through counterfeit goods); and over the internet or e-commerce (through fraudulent transactions such as cyber crime). Other avenues may be through poor services in the medical, financial, and learning institutions. Issuance or obtaining of academic certificates through fraudulent means amounts to academic fraud which is also a form of consumer fraud. …

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