AN EMPIRICAL EXAMINATION OF FRAUD IN THE NIGERIAN BANKING INDUSTRY

By

OLORUNSOLA TUNRAYO NIKE

Presented To

Department of Accountancy

ABSTRACT

Fraud in the Nigerian banking institution in seen by people as an enemy, moreover on their own assets even when they themselves are cleaver fraudsters or dupes on their people. It exists in different sectors of our nations economy's education, Agriculture , Mining, Production Banking.

The researcher has systematically expository and analytically presented the empirical examination of fraud in the Nigerian Banking industry taking into consideration symptoms that necessitated on it.

It discuss on the concepts, sources, forms and causes, detection, presentation, effects, legal process and how it can be evaluated.

The researcher also examine at various levels like bribery, computer frauds, professional frauds.

The researcher also uses both primary and secondary data.

TABLE OF CONTENTS

Title page

Acknowledgement

Dedication

Abstract

Table of contents

Chapter One

10 Introduction

11 Background of the study

12 Statement of the problems

13 Objective of the study

14 Significance of the study

15 Definition of terms

Chapter Two

20 Review of Related Literature

21 The concept of fraud

22 Source, forms and causes of fraud

221 Source of fraud

222 Forms of fraud in the Nigerian ban king industry

223 Causes of fraud in the Nigerian banking industry

23 Detection of frauds in Banks

24 Prevention of frauds in banks

25 The effects and dangers of fraud

Chapter Three

30 Research Design and Methodology

301 Research Design

31 Date collection methods

32 Primary data

33 Secondary data

34 Research instruments

35 Sources of data

36 Method of data collection

Chapter Four

40 Data presentation

41 Data documentation

42 Research strategies

43 Research approach

44 Measurements and sealing procedures

45 Method of investigation

Chapter five

50 Discussion, Conclusion and Recommendation

51 Discussion of finding

52 Conclusion

53 Recommendation

54 Limitation

References

CHAPTER ONE

10 PRODUCTION

11 BACKGROUND OF THE STUDY

The mere pronouncement of the word, "Fraud", before people sends a wave of doubts, curiosity, anxiety and concern in general in them as regards the satiety of their resources, be they financial or otherwise Fraud is seen by people as an enemy, moreover on their own assets even when they themselves are cleaver fraudsters economy education agriculture, mining, production, banking etc

In the Nigerian banking industry, fraud is as old as the system itself, dating back to the period between 1982 and 1952 period commonly referred to as "free banking era" in Nigeria, when there was no form of banking act or ordinance to regulate the establishment and operations of commercial banks or a central bank to supervise and control banks within this period, expatriate and indigenous bank were established, all being commercial bank these banks were:

1) The African banking corporation in 1892 which later became the British of West Africa in 1893 and presently, the first Bank of Nigeria plc in 1894

2) The colonial bank in 1917 (Later became Barclays Bank dominion colonial and our seas, and presently the union bank of Nigeria Plc)

3) The British and French Bank (now the united bank of Nigeria Plc): all these being the expatriate banks and the indigenous ones being

4) The National Bank of Nigeria 1933

5) The Agbomagbe Bank (now called Wema Bank in 1945)

6) The Africa Continental Bank Plc in 1974; and

7) Other indigenous banks that failed following the introduction of banking ordinance of 1975 whose provisions they cold not meet

Some of these banks that were registered between 1892 never opened their doors for business even for a day while some simple collected customers deposits and vanished Those that failed were for reasons traceable to fraud, mismanagement and lack of government patronage The consequences were the depletion of the individuals and organizations concerned and the nation in general, funds needed for development and upliftment of living standards This resulted to a loss of faith and trust on the banks hat tint he country With the banking ordinance of 1952, some element of sanity entered the Nigerian banking industry which was noticed in the regulation of the formation, operations and activities of commercial bank in the country Since this period and up to this present time, fraud has remained a permanent feature, a regular cankerworm and assuming grater proportions, different dimensions and sophistications day after day

Subsequent to the first banking ordinance in 1952, the central bank of Nigeria (CBN) act of 1959 and other acts and ordinances with their amendments from time to time which regulated and controlled the of the banking industry in Nigeria, the occurrence of fraud could not be helped either Even now in the face of modern banking procedures with improved communication systems, computer technology and automated electronic gadgets and other precautionary measures by the banks, fraud has nevertheless been on the increase with its attendant misfortunes on its victims, "discoveries during investigation show that because of rampant incidents of fraud and forgery which a bank's boss placed on he average of N1 million for working days of the year in Nigeria" it is noteworthy that a precautionary measure like this wastes customers a lot of man hours in the banks before ever they were paid their cheques, thus a defect in the quality of banks services These customers get tired in the midst of the waiting crowd in the bank halls who on their own part pose yet some security threat to those who make withdrawals especially as the withdrawal is normally done before the full gaze of the crowd whom some members primary aim may not be known Even with the long process of clearing, fraud could not be minimized as those who perpetrate it are always clever, more sophisticated fraud schemes to circumvent the always installed control measures

Noting that the Nigerian banking industry is made up of central bank, commercial banks, merchant banks, development banks, people's bank and community banks' it is the aim of this research work to make an empirical examination of fraud in the industry of bank

12 STATEMENT OF THE PROBLEMS

In our daily newspapers are incessant reports on frauds in Nigerian banks For instance, business Concorde of January 23^rd 1989 noted with various security measures, they still make nonsense of the various security measures in banks by employing scientific means of gaining access into their strong rooms Also, business aims of January 27^th 1989 amended that the rising incidence of bank fraud has created a lot of distrust between banks and their customers it is not only that there are reported cases of fraud but he sums lost are staggering

The Nigeria accountant, writing on bank failure observed that, "the historical framework of bank failure, will not be complete without adequate attention paid to the activities of fraudulent members of the board and staff" this thus expresses what harms fraud is capable of causing the banking industry

The methods used in perpetrating fraud are increasing in number and sophistication day-by-day While the management of banks are busy devising means of checking fraud, the fraudulent staff are also busy devising new methods of duping the banks Fraud used to an undesired loss of public funds and puts the integrity of the management of the affected banks in doubts Every incidence of fraud drops off some degree of public confidence in the banking industry and slow down banking habit in Nigeria

In the light of this, if nothing positive is done to check these incidence early enough, fraud could lead to the liquidation of the banking industry in particular The policy magazine, writing that banks should build a reputation which can encourage their customers, both existing and prospective, to transact with enthusiasm instead of reluctance They should strive to rebuild the confidence of the public by satisfying its want both functionary and psychotically This research work as a result concentrates purely on the banking industry with a view to providing suitable recommendations that will help on fraud prevention or minimization

13 OBJECTIVE OF THE STUDY

The objective of this research project is to carry out an empirical examination of the fraud in the Nigerian banking industry The researcher having identified some of the problems attendant on fraud in the banking industry like insecurity of customers' fraud for development and upliftment of living standards, loss of public confidence on banks, etc will now state the major objectives amongst others fro carrying out this research work These include:

a) To determine if fraud exists in the Nigerian banking industry

b) To determine the causes of fraud in the banks in Nigeria

c) To determine if t here are legal loopholes in the Nigeria legal system that and fraud

d) To determine the effects of fraud on the operations of banks in Nigeria

e) To proffer preventive measures and strategies against fraud so as to salvage the Nigerian banking industry as regards fraud menace

14 SIGNIFICANCE OF THE STUDY

It is a fact that fraud has disastrous effect on banks and the economy in general In the first place all aspects of this research work are very relevant in one way or the other to he Nigerian banking industry in general

Moreso, bank in Nigeria will elative great assistance from this research work in detecting fraud in their business and consequently, thereby adopting and implementing the various suggestions and recommendations made in this study in their control systems Also, this study will help readers and those who may be interested in carrying out further study, serving as a reference point from time to time

Finally, it cannot be over-emphasized the fact that if banks were all to reduce the incidence of fraud in their operations to the lowest level, the6y will be operating on a more profitable ground; the extinguishing public confidence on banks will once more be restored and economic revival achieve

15 DEFINITION OF TERMS

Owing to the particular meaning and interpretations that are given to most of the terms used in this researcher work, it was considered worthwhile to define them as they relate to this work

1 Fraud: This is an intentional distortion of financial statements for whatever purpose and misappropriation of assets involving the use of criminal deception It is an act perpetrated to obtain an unjust or illegal advantage

2 Embezzlement: This is theft by a person, of assets entrusted to him / her It involves converting to a person's own use and benefit, a property entrusted to the person's care

3 Misappropriation: This is the use of an asset for a purpose other than that which it is meant for

4 Internal control system: This is the whole system of controls, financial and otherwise, established by management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure ad hence to management policies, safeguard the assets and secure as much as possible the completeness and accuracy of the records

5 Inspection Unit: This is a unit established in a bank by the management as part of the internal control system, charged with the responsibility of detecting and or preventing errors and fraud by inspecting the records of the banks carrying out checks in some areas of the banking operations It is different from the internal audit department

6 Commercial Banks: These are banks that perform deposit collection functions and provision of commercial credits to and transfer of deposits

7 Community Bank: This is a self sustaining financial institution owned and managed by commercial group of communities for the purpose of providing credits, banking and other financial services to its members at the grass root level Granting of its loans does not require collateral's an indication of credit worthiness but self recognition and the credit worthiness of the loan applicant in the community

8 Bank: This is the store house of a nation's economy, a place where money and other valuables are kept for sage custody