CRITICAL ANALYSIS OF BANK FRAUD AND MALPRACTICE IN NIGERIA A COMPARATIVE STUDY OF AFRIBANK, UNION BANK AND UBA PLC

By

NWABUISI ANURIKA EUCHARIA

Presented To

Department of Accountancy

ABSTRACT

Frauds and Malpractice are gradually becoming rampant and a daily occurrences in our banking industry while the bank management are busy working out means of detecting, checking frauds and malpractice, the frauders on the other end are busy designing new methods of circumventing those measures in conjunction with some dishonest bank staff. It should be pointed out that the effect destabilizes banks not only that, hinders growth of banks and attaining their aims and objectives or goals. Hence we have good number of distressed banks now in our country.

The menance ranges from falsification of entries, forgery of signatures of account holders, spurious letter of credit, theft and bank cashiers and outsiders, telex fraud to mention but a few.

The objectives of this research work is therefore to carryout survey and investigation on the major causes of frauds and malpractices in the banking industry with reference to Afribank (Plc), Union Bank (Plc), and the UBA (Plc) in Enugu zone.

The project also evaluated various forms of fraud and malpractice that can be existence, relating to this project in examining the problems, the researcher used both primary and secondary data.

In conclusion, the researcher believes that this study has some how achieved its predetermined aims and objectives by identifying various ways by which frauds and malpractice will be reduced if not prevented or even put to a stop by analyzing possible frauds and malpractice and possible ways of preventing them.

Finally, this report is primary a prelude to the student undertaking similar works in related discipline as the writer due to the constraints encountered could not go beyond this scope. This project finally worked out ways of preventing or reducing the above problems.

TABLE OF CONTENTS

COVER PAGE I

TITLE PAGE II

APPROVAL PAGE III

DEDICATION IV

ACKNOWLEDGEMENT V

ABSTRACT VII

TABLE OF CONTENTS IX

CHAPTER ONE

INTRODUCTION 1

BACKGROUND OF STUDY 2

STATEMENT OF THE PROBLEM 5

OBJECTIVE OF THE STUDY 7

SCOPE, LIMITATION, DELIMITATION OF THE STUDY 8

HYPOTHESIS 11

SIGNIFICANT OF THE STUDY 12

CHAPTER TWO

REVIEW OF LITERATURE 13

WHAT IS FRAUD AND MALPRACTICE 13

SOURCES, FORMS AND CAUSES 14

THE EFFECT OF BANK FRAUD AND MALPRACTICE 16

CHAPTER THREE

FINDINGS, CONCLUSION AND RECOMMENDATION 18

REFERENCES 23

CHAPTER ONE

INTRODUCTION

BACKGROUND OF STUDY

Banking activities in Nigeria dates back to the free banking era between 1895 when the first bank, the African banking corporation were enacted in Nigeria.

In the free-banking period (1892-1952) there were no banking acts neither were there any ordinances to regulate the establishment and operation of commercial banks in Nigeria, many banks were registered some of which did not mean business while others simply collected customers deposits and vanished. This derailed the economy of valuable funds needed for development and individuals of their herd earned funds. This also brought about loss of faith and trust in the commercial banks by Nigerians.

However, even with the introduction of the first banking ordinance in 1952 and the central bank of Nigeria (CBN) ordinance in 1958 to regulate and control the activities of commercial and merchant banks in the country, fraud and malpractice have increased in size and the method used required greater sophistication by the day.

Fraud in our banks involves summary techniques or forms such as: forgeries of bank instruments like: Drafts, cheque, vouchers, letters of authority, falsification of accounts and records and cash fraud. From past records the assumptions is that dishonest or misappropriation or rather fraud in which ever form, succeed only with the aid of bank employees who conceive with disguised customers wearing innocent faces. Inefficiency and negligence in terms of leadership or supervisory roles on the part of the bank officials constitute yet another headway through which dishonesty, fraud parse prevail or succeed in our banks. This can manifest as prescribed by the industry.

Presently, with the introduction of modern banking proceeding improved communication system, automotive electric gadgets and computers into banking industry, frauds have rather gone nuclear dimension inspite of the wonderful nature of the computer and all the precautionary measures taken by banks to prevent fraud in their banks. The amount involved in fraud nowadays have increased in geometric progression. Olaleye Amupiten in his articles on "obstacles to growth of banking industry" said that "it was discovered during investigations that banks now take extra precaution before clearing a cheque because of rampant incident of frauds and forgeries, which a bank boss placed on the average of N1million per each working day of the year in Nigeria.

Banking in a bid to reduce the incessant occurrence of frauds in their banks, now take adequate precautionary measures before clearing cheque drawn on their customers accounts. Those adequate precautionary measures give rise to another problem facing commercial banks that is the problem of time wastage in the banking halls. Ashimi Kola in his article also said that "customers wait a minimum of about two hours in the banking halls of Nigerian banks to cash their money. This has been one of the most legitimate criticism of the quality of banking services. The checking process is long and by the time a cheque is released to the cashier for payment the customer is frustrated and perhaps had fallen asleep. This calls for an overhaul of the checking and control system.

The above gives light of the general situation of things commercial banks. Fraud is therefore a major enemy to all concerned with the growth and development of our banks. The intention of this research work is therefore, aimed at the identification of the causes of fraud in our banks, the effects or consequences of banks frauds in Nigeria economy and also to recommend more functional measures that will help in the minimization and control of frauds.

STATEMENT OF THE PROBLEM

In recent times, bank frauds dominate the front pages of our daily newspapers, such striking and easily called to the mind headlines include: "cashier nabbed over N80000", "Accountant arrested and two escaped", "And three forfeit N3 million, "Men of "419" invaded banks", "large scale fraud in banks", just to mention but a few.

The industry has continued to witness increased number of frauds and malpractice with varying degree of sophistication. It was reported by the Nigeria deposit insurance corporation (NDIC) that "Banking industry has lost about N1 billion of to fraudsters last years, indicating a continuing increase in banking fraud". This money was lost between January and march 1993, out of record fraud attempts involving N4 billion.

In 1991 a total of N360.2million was involved in frauds, with actual loss amounting to 25 . 2 million, compared with the N788.8 million recorded in 1990. Although the actual loss worsened by 13.8 percent in the 1996.

This shows that while bank management are busy working out means of checking fraud and malpractice fraudsters on the other hand in conjunction with some dishonest bank are designing new methods on how to circumvent those measures. It will then be pointed out here that the results or implications of these are damaging. Frauds and malpractice leads to unnecessary loss of huge amount of money. This loss of money by the banks cripples banks activities and transactions.

Again, every incidence of frauds and malpractice reduces public confidence on bank, hence they question the credibility of the banking industry in protecting their money and meeting up with daily transactions. Furthermore, the banks frauds and malpractice delays or shows down the development of banking habits in Nigeria. People shy away from banks in fear of losing their money in case of fraud occurs.

Banks fraud and malpractice keeps the management of banks alert and cause them to waste resources and energies on fraud prevention and detection. It is therefore the adverse position banks fraud and malpractice places on these sector of the economy that crops up this project.

OBJECTIVE OF THE STUDY

In view of the fore-mentioned problems, it becomes obvious that if nothing positive is done to check these incidence of frauds and malpractice, it may lead to frequent bank liquidations in the economy. The objectives of this research work is therefore to:

Carry out the survey and investigations on the major types of bank frauds and malpractice in Nigeria using some selected commercial bank in Enugu zone as a case study.

To determine the causes and the basic factors encouraging bank fraud and malpractice and examine the various forms and areas of occurrence.

To look into the possible effects or consequences of bank frauds and malpractice in the operation of banks in Nigeria.

To examine the various management and government devices geared towards eliminating or controlling financial fraud.

Finally, to present recommendations or solutions that may help in reducing if not eliminated, bank frauds or malpractice.

SCOPE, LIMITATION AND DELIMINATION OF THE STUDY

The main focus of this study is on the fraud and malpractice in Nigerian Bank with reference to the Union Bank Plc, Afribank Plc and the United Bank for African (UBA) Plc, in Enugu zone.

The study cannot be said to have covered all the aspects of the topic under study, and no single text, articles can pretend to have done so. Since the work is purely for academic purpose; in partial fulfillment of the requirements for the award of National Diploma (ND), it is conducted within the limits allowed to a student by limiting factors viz, finance, time, inadequate or low response and access to useful data.

The study was concluded by the collection of information from the case study area. And the data so obtained is complimented with past contributions by author on that topic. The data so collected will be analysed and inferences and recommendation drawn there firm.

This work will be limited not only to Bank fraud and malpractice in Nigeria but also more specifically on the banks under study. That is to say, just like it was mentioned above, that the researcher is faced with some constraint which made it difficult for the researcher to get to the vital information needed for the study.

In other words this work is a child of careful evaluation and analysis of bank fraud and malpractice in Nigeria.

RESEARCH QUESTION

The investigation concerning this study will be based on the following questions.

To what extent does fraud and malpractice affect banks earnings.

Does fraud and malpractice lead to loss of frauds in the banking industry.

To what extent does dishonesty bank staff, societal value and inadequate staff, training contribute to the existence of fraud or malpractice in the banking industry.

To what extent does this issue of fraud and malpractice affect the customers confidence in terms of safety of their deposits and obtaining steady services.

HYPOTHESIS

According to Mc-Donald and Orwell (1974) in the book American Encyclopedia Hypothesis is defined "as a preposition assured to be true merely for purpose of argument or a preposition or theory put forward to account for and order a body of fact".

To guide this research work and to accomplish the above outlined objectives, the following hypothesis will be subject to testing.

H_o/H_i Frauds and malpractice leads to do not lead to unnecessary loss of frauds in the banking industry.

H_o/H_i The occurance of fraud and malpractice reduces/do not reduce public confidence in the banking industry.

H_o/H_i Dishonest bank staff societal value and inadequate staff training are/are not major causes of fraud or malpractice.

H_o/H_i Bank fraud or malpractice affects/do not affects banks earnings.

SIGNIFICANT OF THE STUDY

Bank fraud and malpractice like cancer worm have eaten deep into the fabric of the banking industry in view of that, all efforts have been made in this research work and all possible avenues exploited so as to proffer solutions on reduction or prevention of bank fraud and malpractice.

This research will be for mutual benefits of banks managements shareholders and mostly to customers whose deteriorating confidence on the banking industry will once be restored. This leading to overall security of fraud and assets of the organization for the achievement of management overall goals.