FRAUD MANAGEMENT IN THE NIGERIAN BANKING INDUSTRY

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FRAUD MANAGEMENT IN THE NIGERIAN BANKING INDUSTRY

INTRODUCTION TO CHAPTER ONE OF Fraud MANAGEMENT IN THE NIGERIAN BANKING INDUSTRY

1.1 Background Of The Study

In today’s Nigeria, the level of fraud has reached epidemic proportions. It has infiltrated every element of our lives to the point where a three-year-old child talks about yahoo mail or 419, a recently discovered term for advanced free fraud that is ravaging our banking system.

Nigeria, with all of her natural and human riches, is on the verge of collapse due to fraud. Much of what we do is “cutting leaves” rather than addressing the underlying cause.

In general, deceit stems from the human heart. It is an aphorism that the heart is the most deceptive and evil of all. Fraud is the number one enemy of business; no company is immune, and it exists in all walks of life. Nwankwo, Nwankwo (1991).

The fear is now widespread that the increasing wave of fraud in financial institutions in recent years, if not arrested, may pose certain threats to the stability and survival of individual financial institutions,

as well as the performance of the industry as a whole, and that no sector of the economy is immune from fraudsters, including the banking system. Fraud, if not detected, has the potential to precipitate a run on the banking industry.

The existence of financial intermediaries takes care of the sizes of funds that exist in the economy. Financial intermediaries are financial institutions that act as a bridge between the surplus sector of the economy (households) and the deficit sector of the economy (government, business enterprises)

by encouraging the surplus sector to save a portion of their income that is not consumed and repackaging it for lending to the deficit unit at a high interest rate. Banks, insurance firms, and savings and loans are examples of financial institutions in Nigeria.

The primary issue plaguing financial institutions today is “fraud,” which has forced many of them out of business and has caused industry clients to lose faith in them because they have not been able to control the heinous event known as “fraud.”

According to the Nigeria Deposit Insurance Corporation’s (NDIC) annual report for the year, bank fraud continues unabated and continues to jeopardise the banking industry’s well-being.

The NDIC warns the nation year after year about the dangers posed by fraud to the banking sector and has also explained to industry participants that the sad and unfortunate incidence of increasing frauds and forgeries in the industry will not only deplete the banks’ capital but will also contribute to the erosion of depositors’ confidence in the system.

Prior to 1986, banks were not required to disclose occurrences of fraud. Returns were either very low or modest, there were few banks, and salaries were poor in comparison to other sectors of the economy.

With the implementation of the Structural Adjustment Programme (SAP) in 1986, profits grew to high levels, returns on investment increased, salaries became more attractive, and public interest in banking surged.

By 1989, some banks had documented 3105 million frauds, with commercial banks accounting for 392.2 million and merchant banks accounting for 37 million (Business Times, 20th August, 1990).

Olufidipe (1994) defines fraud as “deceit or trickery deliberately practised in order to gain some dishonest advantage.” Fraud is a hydra-headed phenomena that manifests itself in several ways.

Money transfer fraud, fraudulent lending, check kitting, transaction fraud, letter of credit fraud, borrowing from the till, anti-money laundering, credit and debit card fraud, first party fraud, online fraud, to name a few.

Fraud does not just happen; it is perpetrated by humans who have causes or objectives. External and internal variables are both major causes of fraud. Bank robbery and fraud are examples of aberrant social behaviour. Today’s escalating trend in bank fraud and robbery can be traced back to key antecedents in modern society.

In recent years and now, Nigeria has experienced widespread moral decadence, indicating a rapidly deteriorating and debased value structure. For example, wealth, regardless of origin, now demands a high premium in Nigerian society.

Because the installation and day-to-day implementation of a bank are the responsibilities of the bank’s top management, the internal cause of fraud today in the banking industry can be traced to the following internal environmental factors: corrupt or weak management, ineffective control system, poor personnel practises, shortage of experienced and expertise staff.

Indeed, as Comer (1985) stated, “the scale of fraud in an organisation is a reflection of its managers’ ability to manage,” implying that at a bank where the top management is known to engage in dishonest banking practises, fraud will be frequent among the junior personnel.

To reduce or manage the alarming rate of fraud in the banking industry, industry stakeholders must establish and implement an effective and efficient control system that will sufficiently monitor the industry’s daily activities without gaps. As a result, suitable personnel policies and practises should be implemented, because moral decay leads to fraud.

1.2 Statement of the Problem

The following are the issues that impede fraud management in the banking industry and are addressed in this study:

In banks, there is a lack of an efficient and effective internal control mechanism.

Inability of bank officials to continuously follow established bank processes while conducting business.

Inadequate opportunity for bank officials to receive fraud detection training.

Non-availability of an established procedure for detecting fraud, as well as related controls meant to minimise the risk involved, which must be regularly reviewed and updated.

Finally, the physical control mechanism of operation is ineffective.

1.3 Aims and Objectives of the  Study

The study’s goal is to look into fraud management in the Nigerian banking system. The following are the study’s objectives:

1. Explain the meaning of the term “fraud.”

2. To define the different types of fraud.

3. Identify and describe the sources of fraud in the Nigerian banking industry.

4. To investigate cases of fraud and forgery in Nigeria.

5. To give recommendations on how to severely decrease, if not completely eliminate, fraud and forgery in the Nigerian banking industry.

1.4 Importance of the Research

This research will educate the general audience on the following topics:

– Definition of fraud

– The sources of fraud

– The various sorts of fraud

– The function of auditors and other steps to reduce the root cause, prevent, and control fraud.

Through this study, bank customers will be made aware of the possibility of fraud and will be more cautious while dealing with the bank.

Furthermore, bank staff would be instructed to be vigilant when providing services and to assist their customers in avoiding fraud.

It is critical to highlight that if not regulated or minimised, fraud can erode the assets of banks, resulting in the untimely death of the bank. As a result, this study will be useful to the financial industry in combating fraud.

1.5 Investigational Questions

The following questions are posed to guide the conduct of this research:

1. What do the terms fraud and forgeries mean?

2. What are the different types of fraud in the Nigerian banking industry?

3. What are the reasons of economic fraud in Nigeria?

4. What are the various methods of preventing fraud?

1.6 Scope of The Study

The study’s scope is to critically investigate fraud management in the Nigerian banking industry (2000-2008). The report also discusses the nature of fraud, its various varieties, causes, management control mechanisms, and the repercussions of fraud on the Nigerian economy.

1.7 Limitations of The Study

The following are the significant issues faced while doing this research:

1. Due to the annual upgrading of the SPSS software, it required the researcher a significant amount of time and effort to obtain the most recent, compatible, and appropriate version for the research task.

2. The government authorities’ negative attitude towards providing needed data.

3. Due to the hurried nature of CBN, NDIC personnel, and the researcher, numerous visits to these locations are required, which costs time and money.

4. In addition, certain material was coded by the organisations and not supplied to the researcher.

However, every effort has been made to guarantee that the research work is completed and of high quality.

1.8 Definition of Key Terms

1. Financial Intermediaries: These are financial institutions that act as a bridge between the surplus sector (households) and the deficit sector (government, business enterprises) by encouraging the surplus sector to save a portion of their income that is not consumed and repackaging it for lending to the deficit unit at a high interest rate.

2. Depositors: Individuals who deposit money in a bank or building society, typically in a deposit account.

Banks, insurance firms, and savings and loans are examples of financial institutions.

4. Customer: Someone who uses a company’s services.

5. Bank: A financial institution that holds money in accounts.

It lends money and trades cash for its clients.

6. Bankrupt: A person who deposits funds in a bank or building society, particularly in a deposit account.

7. Management: The ability or practise of commanding, directing, or planning something, particularly a commercial operation or activity.

Money Transfer Fraud: They are money transfer services in which funds are transferred to or from a bank to a beneficiary account at any banking location nationwide in accordance with the bank’s customer’s instructions.

9. Letter of Credit: A letter of credit is a credit instrument issued by a bank in which the bank agrees to make payment or ensures the recipient that payment will be made pursuant to the credit’s terms.

10. Cheque Kiting Fraud: This is the habit of amassing a big apparent balance in one or more bank accounts by using uncollected cheques issued on comparable accounts in other, sometimes distant, banks.

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