FRAUD AND IT'S ROLE ON BANK FAILURE

By

OBIEKWE VICTOR OBINNA

Presented To

Department of Accountancy

ABSTRACT

This project/term paper is designed to critically analyse the fraud on bank failure and its role in Nigeria financial Institutions with reference to the banking system.

Fraud in both private and public sector of Nigeria economy is an age long phenomenon that has for a long time being threatening the growth and development of the Nigeria Nation State. It has defiled the very professional expertise know-how due to its continuous increase.

The effect of fraud on the Nigeria financial institutions mainly regarded as the life-wire of the nations economy is to say the least devastating. Found outs across the length and breath or the Nigerian financial institutions and has resulted in resulting many well established firms to mere existing level, while so many others have been completely liquidated. It is this ugly development in the "Power house" of the financial sector of our economy that altercated my interest hence my choice of the topic: Fraud and its role on bank failure; with particular reference to the banking system.

This work will dig deep into the

1. Types of fraud.

2. Caused of fraud

3. Extent of involvement of insiders and outsiders in the preparation of fraud.

In this project/ term paper chapter explain the term fraud, it tries to explain the fact that fraud is and to continues to trouble the financial sector of the economy unless great efforts are put together to fight it. Chapter one starting with the introduction which is the scope of the study. Chapter two is the literature review which embraces the subheading; Types of fraud, foreign exchanges malpractices, tilex fraud, fraud against the company, Advance free fraud (419), Bank fraud, and the effect of fraud on banks. Chapter three is the solution to the menace of fraud. Further, the summary of the whole finding recommendation by research and possible conclusion on the topic.

The bibliography is also there.

TABLE OF CONTENTS

Title page

Approval page

Dedication

Acknowledgement

Abstract

Table of content

CHAPTER ONE

1.0 Introduction

CHAPTER TWO

2.1 Types of fraud

2.2 Foreign exchanges malpractices

2.3 Telex fraud

2.4 Fraud against the company

2.5 Advanced free fraud (149)

2.6 Bank fraud

2.7 The effect of fraud on banks.

CHAPTER THREE

3.1 Summary

3.2 Recommendation

3.3 Conclusion

Bibliography

CHAPTER ONE

1.0 INTRODUCTION

The period between 1947 and 1952 witnessed a rapid growth of indigenous banks in Nigeria. The increase in the number of indigenous banks was correspondingly followed by a high rate of collages of such banks. By 1954 about 21 out of 25 indigenous bank operating then in Nigeria had folded. The experience of banks failures was a sad affair for both officials, depositors and regulator.

However, since the establishment of CBN IN 1959 the government had ensured through direct support mechanism that the banking public was no longer exposed to the hazards of bank failures. The government active involvement in banking and other economic scenes, were both for socio-economic and political consideration. The issue of efficiency in both the allocation and utilization of resources in these sectors where government actively participate, was therefore, relegated behind other considerations that were mainly socio political.

However, charge in the country's fortunes coupled with increased competitive demand for resources in these sectors called for a review of government participation in the economic scene, in particular the liability and efficiency of its investments hence the deregulation of the entire economy, as well as the banking industry.

The deregulation of banking industry marked a turning point in the causes of bank failures. The proliferation of banks, relative growth of the industry, provision of improved services offered and higher wages to bank workers, among other fulled the issue of fraud in financial institutions.

Fraud is arguably the fastest growing phenomenon in Nigeria, millions of Naira are undoubtedly lost each year to fraud in Nigeria and other countries of the world. This raging distress sydrome, which is not uncurious now in finance houses and banks has its roots in several fraudulent practices.

The international Auditing Guidelines (IAG) define fraud as a particular type of irregularity. This refers to the involving the use of deceit's to obtain an illegal unjust advantages and may involves the following:-

1. Manipulation, falsification or alteration of records or document.

2. Misappropriation of asset.

3. Suppressing or omitting transactions from records or documents.

4. Recording transaction without substance and misapplication of accounting policies if this is intentional and deceitful.

Anyanwu 1993 defined fraud generally as an act or course of deception deliberately practiced to gain inlawful or unfair advantage, such reception directed to the detriment of another. According to him, it therefore suggests unfair dealings and could be against the bank by its customers or by third parties against the customers by the bank officers, or against the bank by its officers etc.

In this sense, it could take then form of falsification of entires in the accounts of the customers with a view to take benefit of the excess proceeds or the shortfalls. It could be through forgery of signature of account holders and unlawful withdrawal of money from their accounts or involving cash thrift by bank officials (e.g cashier, cash officers etc) as well as customers.

Banking industry in the country recorded higher incidence of fraud and forgery in their operation years back.

The Nigeria Deposit insurance corporation (NDIC) Annual report 1994 has it that banks with fraud and forgery cases climbed from 33 in the first quarter of 1994 to 45 in the last quarter. These figures are frightful development on the 28 cases recorded in the last quarter of 1903 and 29 cases in the last quarter of 1993 and 229 in the last quarter of the same year.

The amount of money involved also rose sharply form 426.3 million in the last quarter of 1994 to 1.4 billion.

Statistic based on the returns of commercial banks on fraud and forgeries showed that the aggregated amount N 1.3 billion in 1993 compared with N 2.6 billion in 1994 while the actual expected loss in 1993 was N 2.41 million and N883.6 million in 1994 while fraud and forgery cases went up in commercial banks, the situation with merchant bank was better 337 bank workers lost their jobs the previous year due to fraud related crimes NDIC 1991 decoded that about 22, 203 staff lost their jobs in the National Bank due to frauds in subsequent years.

The role of the banking industry cannot be over emphasized in the growth and development of a country. In the nation economy, it is an important bridge between deficit and surplus. The objective of this paper is to study the banking system, the causes of bank failure with emphasize on fraud, types of bank fraud, their roles presentation and control. This paper is divided into five sections. It starts with the introduction section which treats the general introduction of subject matter, comprising the treatment of the meaning of fraud and cases of banking failure.

It also treats the objectives of the entire study, scope and structures of the study as well as the structure of the study. The second section; literature review. This section is divided into two parts the first parts deals with the types of fraud and the various causes of bank failure in the past as well as the present time.

The third section is the data analysis and presentation. This section attempts designing the framework in the form of a model to text the effect of fraud in bank failures. Focus will be entered and bank performance and the inception of failure in the banking sector on the basis of this data will be collected for chapter. Under this, the role of fraud or bank failure will be evaluated and its multiplier effect on the economy.

The conclusion ended with a summary, recommendation and of course the conclusion proper.