Banking Fraud and Its Effects on Nigeria’s Economy
Chapter One
Objectives of the Study
The general objective of this study is to analyze the effects of banking fraud on the economic growth of Nigeria. Other specific objectives of the study include the following:
- To identify the categories of bank frauds and forgeries in Nigerian banking sector.
- To identify effective control strategies for managing banks fraud and forgeries in Nigerian banking sector
CHAPTER TWO
LITERATURE REVIEW
Conceptual Frame Work
Black‟s law dictionary (6th edition, 1990) has defined fraud as „‟an intentional perversion of truth for the purpose of inducing another, relying upon it to part with some valuable thing belonging to him or to surrender a legal right. A false representation of a matter of fact, whether by words or by conduct, by false or misleading allegation or by concealment of that which deceives and is intended to deceive another so that he shall act upon it to his legal injury. Anything calculated to deceive, whether by a single act or combination or by suppression of truth or suggestion of what is false whether it be by direct falsehood or innuendo, by speech or silence, word of mouth, look or gesture .It is pragmatically essential to exegesis on the various operational definitions of major concepts of this topic. This will give a clear understanding of the concepts that are very synonymous but never the same, especially the word fraud, forgeries and errors.
Fraud is described as an act of deliberate deception with the intention of gaining some benefit, in other words it is the act of dishonestly pretending to be something that one is not. (Chamber English Dictionary, 2002). Wikipedia (2008) defines bank fraud as whenever a person knowingly executes, or attempts to execute, a scheme or artifice (1) to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by or under the custody or control of, a financial institution, by means of false or fraudulent pretences, representations, or promises. Also from the legal point of view, Fagbemi (1989) perceived fraud as “the act of depriving a person dishonestly of something which is his or something to which he is or would or might but for the perpetration of fraud, be entitled”.
The view of Adewumi (1986) is that fraud is a conscious premeditated action of a person or group of persons with the intention of altering the truth and or fact for selfish personal monetary gain. It involves the use of deceit and trick and sometimes highly intelligent cunning and know-how. The action usually takes the form of forgery, falsification of documents and authorizing signatures and an outright theft. Almost in the same direction Nwankwo (1991) also opined that fraud occurs when a person in a position of trust and responsibility, in defiance of norms, breaks rule to advance his personal interests at the expense of the public interest, which he has been entrusted to guide and promote. It occurs when a person through deceit, trickery or highly intelligent cunning ways, gains an advantage he could not otherwise have gained through lawful, just or normal process.
It is evidence from the multiple-definitions given by various scholars that the word fraud is generic in nature. However fraud is generally considered to be anything calculated to deceive. This include all arts, omissions, and concealments involving a breach of legal or equitable duty, trust or evidence justly reposed which result in damage to another or by which undue and conscienceless advantage is taken of another. Fraud is distinctive from any other term that looks like it such as forgery and errors in that, it shows a more affirmative action, evil in nature such as intentionally and deliberately proceeding or acting dishonestly with a wicked motive to cheat or to deceive another. Forgery is a type of fraud which is mainly a falsification or manipulation of documents. Generally forgery is characterized by alteration of writing to the prejudice of other rights. Basically, three elements are identified with forgery.
According to Adebisi (2009), there are three forms of fraud. They are the internal, external and a combination of internal and external frauds. Internal fraud: This is a fraud made against an organization by an insider- say a staff. If the staff is not capable of starting and concluding the whole process, he may carefully select a „‟TEAM‟‟ within the organization External Fraud: This is a fraud perpetrated by outsiders. This is the exact opposite of internal fraud. Combination of Internal and External Fraud: This is often referred to as „‟collusion‟‟. Fraud in a bank can be committed by a bank customer, bank staff or a combination of staff and customer or third parties. This is very common and the success rate is higher than the first two. Fraudulent transactions in organizations such as banks could equally be classified according to fraud type. This in turn is divided into three broad categories, namely by flow, victims or by Act.
Structure of the Banking industry
The Nigerian banking system falls under the auspices of the Central Bank of Nigeria (CBK). The CBK is an independent Central Bank that engages with fiscal and monetary policies for the Nigerian government as well as oversight of the Nigerian banking industry (Central Bank of Nigeria, 2007; Central Bank of Nigeria, 2008c). Other than formulating or implementing monetary policies the CBK fosters the liquidity, solvency and proper functioning of the banking and financial systems in Nigeria (Central Bank of Nigeria, 2007). As at the end of December 2010 the banking sector comprised of 43 commercial banks, 1 mortgage finance company, 5 deposit taking microfinance institutions (DTM), 2 representative offices of foreign banks and 126 foreign exchange bureaus which are all private and mostly locally owned (Bank Supervision Report, 2010). This included 33 locally owned institutions and 12 foreign owned institutions (Bank Supervision Report, 2008). The local banks included three state-owned or primarily state-owned institutions, 28 privately owned institutions and 2 mortgage finance institutions. The foreign owned banks consisted of 8 locally incorporated foreign banks and 4 branches of foreign incorporated banks. Figure 3.1 demonstrates this arrangement and structure of the Nigerian banking industry. Additional components of the financial sector in Nigeria that will not be studied include micro finance institutions, insurance companies and the Nigeria stock exchange.
CHAPTER THREE
RESEARCH METHODOLOGY
Research Design
This study adopts the ex post factor and analytical design. Data was analyzed using two separate approaches namely the descriptive and inference statistics. multiple regression analysis was used to analyze the hypothesis. SPSS statistical package was used to test the stated hypotheses.
Model Specification
This study is largely quantitative and builds on existing studies and methodologies. Using regression analysis, Total number of fraud cases was used as the dependent variable while, total amount involved In fraud, total expected loss and percentage of loss total amount serves as independent variables
Specifically,we have:
Y = β0 + β1X + μ
Y=EPS and X= Fraud Variables β0 = Constant Term
β1 = Coefficient of X1 μ = Error term
Mathematically, we have, TNF=a+ TAI+ TEL+PLTA
Where,
TNF= Total number of fraud cases
TAI= Total amount involved in fraud TEL = Total expected loss
PLTA = Percentage of loss on total amount.
Data Collection
For the purpose of this research project, secondary data was obtained from different banks listed in the scope. These multiple sources according to Yin (1994) and Stake (1995) allow the convergence of lines of inquiry and the triangulation of evidence. The study was focused on a particular context and described and analyzed one particular phenomenon richly and comprehensively. The secondary data collected were the fraud cases in bank for the period of 1995 to 2014 to establish the relationship between banking fraud and economic development of Nigeria.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
DATA OF BANK FRAUDS IN NIGERIAN BANK (1995-2014)
CHAPTER FIVE
CONCLUSION AND RECOMMENDATION
Conclusion
This paper investigates the effects of bank frauds on the economic growth of the Nigerian for the period of 1995 to 2014. Based on the research findings, it can be inferred that it is important to emphasize that the management and regulation of bank fraud was quantitatively important in the performance of Nigerian economy as a whole. We observed that bank fraud whether through electronic device, clearing or cheque has had a positive effect on the performance of commercial banks in Nigeria and this affect the growth of the Nigerian economy. This is because the results obtained from this study support both theoretical and empirical evidence that bank fraud have a great effects on the performance of Nigerian commercial banks and concluded that the level of ATM bank fraud over the years have indeed negatively affected insignificantly on performance of commercial banks in Nigeria and the Nigerian economy as a whole; that forged cheque has negative effect but significant on the performance of commercial banks in Nigeria; and that there is significant positive relationship between clearing fraud and the level of commercial banks performance in Nigeria and the entire Nigerian economy.
Recommendations
From the findings of this study, the following recommendations were made to improve the effects of bank fraud on the growth of the Nigerian economy:
The regulatory and supervisory bodies of banks in Nigeria need to improve their supervision using all tools at their disposal to appropriately check and curtain the incidence of fraud and fraudulent practices in the banking industry in Nigeria.
Furthermore, training techniques should be upgraded to test honesty and integrity and not just technical skills. This should entail extensive training programme regularly done, as well as personality tests and IQ tests so as to understand the personality and character of the trainee. This would reduce negligence and carelessness in carrying out basic procedures that could pose as loopholes for fraud.
A good internal organization should be put in place by banks. This will ensure that proper delegation exists, duties and job, are clearly divided and that jobs do not overlap. Similarly, staff members should not have unlimited access to sensitive machines and instruments like cheques, and official stamps. Data security should be ensured at all times. The bank however, should make it a point to take good care of their staff through fringe benefits and incentives Jobs at the bank should be constantly rotated, so that no staff stays in one position for too long.
financial difficulty on banks and their customers. It also leads to the depletion of shareholders’ funds and banks’ capital base as well as loss of customers’ money and confidence in banks. Such losses may be absorbed by the profits for the affected trading period and this consequently reduces the dividend available to shareholders. Losses from fraud which are absorbed by the equity capital of the bank impair the banks’ financial health and constrain its ability to extend loans and advances for profitable operations. In extreme cases, rampant and large incidents of fraud could lead to a bank’s failure. The loss in funds affected the economy. It reduced the amount of money available to small or medium scale firms for developing the economy. Based on the above findings, the following recommendations are made: 1. Staff motivation should be a top priority for banks so as to reduce to the barest minimum the number of staffs involved in fraud. The motivation can be in the form of incentives, rewards, payment for overtime job, bonuses, annual salary increment, etc. Also, reward should form part of the bank policy to encourage staff and customers who have helped to frustrate intended fraud cases in the past. 2. Establishment of adequate and sound internal control system is also recommended for fraud prevention. For example proposed account-holders should be verified before any account is opened and all payments instrument with huge amount should be referred to the issuing bank before payment. 3. Adequate training and re-training of staff should be regular. The training should emphasis the responsibilities and loyalties of the staff to the bank. The training should include testing them on issues on morality, trustworthiness, sincerity and fear of God. 4. Top level management and bankers should try to achieve a high ethical standard when carrying out their responsibilities as this will help them reduce fraud. 5. The regulatory and supervisory bodies of banks in Nigeria should improve their supervision using all tools at their disposal to appropriately check and curtain the incidence of fraud and fraudulent practices in the banking industry in Nigeria. Aside these recommendations, the ones given by the committee of Bankers set-up in 1982 as part of the measures taken in eradicating frauds and all other fraudulent activities should be followed and they include: i. Names of dismissed staffs should be circulated to other banks. ii. Strict disciplinary action should be taken against fraudulent staff to serve as a deterrent for others iii. The Chartered Institute of Bankers of Nigeria should black list such staff. iv. Bankers committee should maintain a data bank on dismissed staff and those forced to resign. Taiwo, J.N. et al, Journal of Business Management and Economics, 4 (12), December, 2016 9 The Central Bank of Nigeria also gave some useful suggestions on how fraud can be prevented and control in Commercial Banks. These include: a. No person shall be employed in a bank without a satisfactory reference from their precious employers
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