FRAUD DETECTION AND CONTROL PROCEDURE IN SELECTED BANKS

By

NWANOKWAI OGECHI

Presented To

Department of Accountancy

TABLE OF CONTENTS

COVER PAGE I

TITLE PAGE II

APPROVAL PAGE III

DEDICATION IV

ACKNOWLEDGEMENT V

TABLE OF CONTENT VI

CHAPTER ONE

1.1 INTRODUCTION 1

1.2 DEFINITION OF FRAUD 2

1.3 TYPES OF FRAUD 3

1.4 THE IMPLICATION OF FRAUD 10

CHAPTER TWO

2.1 FRAUD DETECTION 14

2.2 EVOLUTION OF INTERNAL AUDIT 20

2.3 OBJECTIVES OF THE INTERNAL AUDIT 21

CHAPTER THREE

1.1 FRAUD CONTROL 26

CHAPTER FOUR

4.1 CONCLUSION 29

4.2 BIBLIOGRAPHY 30

CHAPTER ONE

INTRODUCTION

Fraud has become a house hold name in our society, the rate at which it is growing if not checked, would have ruined the Nation before the year 2010, the year of hope for all. Indeed one cannot but accept the fact that fraud is predominantly pronounced in our banking industries than elsewhere in our society. This menace in the banking industry has crippled the economy, destabilized business and infact discourage people from saving or putting their money in the bank. They get rich quick syndrome among our youth is yet another boiling point. The ones in key positions sees it as an opportunity to pull a fast one. Bankers no longer belief in their dignity -Honesty and reliability they ever noted for these ha virtually disappeared and replaced with desperate move to get rich where by leading to fraud and embezzlement in the banking industry.

DEFINITION OF FRAUD

Fraud as the name implies means the act of dishonest, deceit and imposture. According to Kisk Patrick (1989) a person who pretends to be something he is not. Fraud is a deceptive trick, and a snored. And by extension fraud will include embezzlement, theft or any attempt to steel r unlawfully obtain misuse or harm the assets of the Bank (Bank Administration Institute, 1989-fraud could be committed by employees, customers or other operating independently or in conspiracy with others or outside the Financial institution. According to Dr. John Orjih. 1996

Fraud can be defined as a consciour or deliberate efforts. Aimed at obtaining unlawful financial advantage at the determinant of another person who is the right owner of the fund. This implies that before fraud is committed it must have been preplanned and then executed while the unsuspecting customers or owner of the funs bears the burden.

TYPES OF FRAUD

There are several ways or methods through which fraud can be committed in the banks namely.

{ Cash frauds

{ Telex frauds

{ Forged cheques

{ Spurious letters of c credit

{ Manipulation of computer records

{ Manipulation of dominant accounts

{ Printing of Bank statutory and carving of Banks rubber stamps

{ Cross firing of cheques or kitting

a) PRINTING OF BANK STATUTORY SND CARVING OF RUBBER STAMPS

Frauds have perfected their ways in this aspect; this unscrupulous people to prepare forged letters of credit and other uses such forged paper and stamps and other international trade instrument with a view to obtain goods with millions of naira under false practice. There are cases of outright stealing and whatever means employed by the cashier, it is necessary to them that it is the property of the bank that has infact been stolen.

b) MANIPLUATION OF DORMINANT ACCOUNT: Account that are not operated for a reasonable length of time is said to be inactive, idle of dormant accounts. Some fraudulent staff of banks sometimes raise vouchers with forged signatures and withdraw money from such dormant accounts without the knowledge and authority of the account holders. Banks authorities should as a matter of facts got proper records and check from times to time accords considered to be dormant in order to regulate this ugly practice by banks official.

c) MANIPULATION OF COMPUTER RECORDS: This act are most perpetrated by Banks officials who work in the computer section. They manipulate wrong inputs into the computer, therefore making the banks to suffer some financial detriment. In this regards, it is advisable that the banks authority make it mandatory for every bank staff to be computer literate so that no a particular staff is permanently placed in the computer section.

d) FORGED CHEQUES: These are by far commonest sources of lost to the bank and customers. They occur mostly on company accounts and are invariably perpetrated by staff within the company who have access to the company's cheque book. Usually they convince with dishonest staff of the paying bankers. This done their victim cases, paying cashier in the bank who are familiar perpetrated this act by forging the signature of the customers must especially those with huge amount of money in their account. In order to cars this ugly menace, on the part of the customers, such customer should introduce to the bank all their authorized signature, cashiers and cash officer to the bank so that they are personally known to the bank officer. Effort should also be made by the customers to have their chequebook property secured to avoid unauthorized person gaining access to it.

Bank should do well by verifying the authentication of cheque. This remains the most potent tools of combating this category of fraud. Large amount must be critically examined regardless the customers personality. It is also paramount important for all bank staff to ensure that all transaction involving the payment of cheque, issuing of cheque book and opening of new account, should be handled with utmost care. Experience bankers know that many account can only escape the charge of clearing fraudulently acquired the cheque.

The high incidence of cheque fraud can be attributed to fact that cheque are basically the key various current account kept with the bank once they carry the genuine signature of the account holder. Fraud of forgeries become efficiently proud when cheque honored by the banker do not bear the genuine mandeles of the account holders agencies whose account, they are drawn and honoured. Where frauds are proved by companies the signature on the paid cheque against those held in the customers mandate file, the less is often borne by the bankers customers account would have to be credited with the amount fraudulently cashed without his mandate the customer has the right to institute an action if the bank refused to credit account with the amount fraudulent withdraw asking the court to held that, infact fraud forgery has been committed thereby seeking for an order against the debt in the account as illegal.

Under the principle of religence or breach of contract, the bank should be compelled to re-credit the customers account with the amount unlawfully withdraw. The account holder shall not in law share any port if the loss unless the banker could move contributory negligence on his part. The correct will always rule in such circumstance that banker has no right to debt his customer with the amount of a cheque which he has paid end to which the drawers signature is forged, hence, the money has paid without the authority of the account holder.

TELEX FRAUDS

This is yet another serious crime in the banking industries which has continued to threaten is existence. Telex fraud, though not so common in Nigeria, but usually when it happens it involve huge sum of money.

Banking system in Nigeria by law allows the transfer of funds abored, in order or application of a bank's customer in settlement of financial obligations after necessary exchange control approval must have been obtained. The system of transfer used been obtained. The system of transfer message which are transmitted abroad or a free through the Nigeria Telecommunication Limited (NITEL) Telex fraud occasionally occurred when authentic message which are to be traced and sent to banks telex officials, superious telex message are transmitted abroad, money is paid to fictitious account abroad through a corresponding bank and later cashed by the over collaboration would credit the fictitious account after decording he telex message.

CROSS FIRING OF CHEQUES OR KITTING

Customers who are familiar with elementary banking operational procedures knows that it takes some days to clear chques through the banking system even when accounts are within some clearing area. The customers indulging in this practice, usually has or own more accounts at two or more banks or branches. He draw a cheque on his account in bank X, knowing fully well that there is no frauds, on that account and deposit the cheques into his account with bank y. He then drew on the on non existent funds in his account at bank Y. This is the simple example of kitting. Thus a customer proper authority.

IMPLICATION OF FRAUD

Fraud leads to unwanted loss of public fund, and put the management of the affected bank unit loss. Every incidence of bank fraud reduces public confidence in banking and consequently row down the development of banking habit in Nigeria.

This continues occurrence of fraud could be as a result of the present state of the world technology and the level of sophistications which has enable people to easily discover more ways of perpetrating fraud in banking system.

The central bank of Nigeria (CBN) recover shows that 412 bank workers were involved in fraud in 1990 as against 313 in 1989, and the amount involved went up from N 105 million in 1989 to N 804, million in 1990. in view of this therefore, there arises a need for positive measures to be taken to avert this situation otherwise, it could lead to the cropping of the economy and the operation of the banking industries in particular.

Fraud or forgeries in banking transactions can be perpetrated through falsification or entries in account of proceeds or the shortfall forgery of the excess proceeds of the signature of account or defalcation involving cash theft by the bank officials, cashier, cash officers etc.

\moreover, them method used in perpetrating fraud in recent times are enquiring nuclear sophistication day after day, while the bank management and busy devising new methods of defrauding the bank. It is obvious here that the result of these incidence are changing in recent years, the banking industry has been witnessing fraud wither from staff or from their industries. It is indeed disheartening to note that majority of the candidates who are bank workers show an extremely poor knowledge of the lows relating to the establishment, licensing and innovation of bank licensing one would have expected them to have more conversant with this legislation.

In legal terms, forgery and fraud has been defined as the act of falsifying or altering out writing for the purpose of doing injury to another person. Any alternation of writing made with intent to defraud is therefore forgery. Where a signature or bill is forged or placed there without the authority of the person whose signature is wholly not operative end no right to return the bill or to give a discharge thereafter fraud as we all know caused great loss in banks.