AN EMPIRICAL EXAMINATION OF FRAUD IN THE NIGERIAN BANKING INDUSTRY

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 nation’s 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.

 

 

 

 

 

 

                                    CHAPTER ONE

                                 INTRODUCTION

1.1     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 fraudster’s 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 could 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 customer’s 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.

According to Olismbu (1991:20), the banking sector has become one of the most critical sectors and commanding heights of the economy with wide implications on the level and direction of economic growth and transformation and on such sensitive issues as the rate of unemployment and inflation which directly affect the lives of our people. Today, the very integrity and survivability of these laudable functions of Nigerian banks have been called into question in view of incessant frauds and accounting scandals. According to Oseni (2006:16), “the incessant frauds in the banking industry are getting to a level at which many stakeholders in the industry are losing their trust and confidence in the industry”. Corroborating the views of Oseni, Idolo (2010:63), stressed that the spate of fraud in Nigerian banking sector has lately become a source of embarrassment to the nation as apparent in the seeming attempts of the law enforcement agencies to successfully track down culprits. Among the Nigerian industrial sectors today, one can confidently say that the banking industry is the most visible sector that arouses most public interest. The viability of the banking sector in any economy stems from its role of financial intermediation, provision of an efficient payment system and facilitation of the implementation of monetary policies. In intermediation, banks mobilize savings from the surplus units of the economy and channel these funds to the deficit unit, particularly private business enterprises, for the purpose of expanding their productive capacity.

Fraud however has been defined by many scholars Olufidipe (1994) defined trick deliberately practiced in order to gain some advantage (1991), fraud is described as „any premeditate a person or group of persons with the intention of altering facts in order to obtain undue personal monetary advantage‟. Another scholar Idowu (2 camouflage, or exclusion of the truth for the purpose of dishonesty/stage management to the financial damage of an individual or an organization. Going by the definition of the chambers universal learners dictionary Kirkpatrick (1985) define fraud as any person who pretends to be something that he is not is a fraud, a snare, a deceptive, trick, cheat and a swindler. Having explained what fraud is, it is pertinent to define bank fraud which is the subject matter of this study; however bank fraud is the use of fraudulent means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently representing to be a bank or financial institution. For an action to constitute fraud there must be a dishonest intention and the action must be intended to benefit the perpetrators to the detriment of another person.

Going by the definitions, frauds in Nigeria cannot be restricted to the banks alone. A lot of fraudulent activities are prevalent in Nigerian economy ranging from bloody killings, ritual, kidnapping, robberies, forgery, misappropriation, cheating, and gangsters and looting. Bank fraud ranges from account-opening, money transfer fraud, cheque kiting, telex fraud, money laundering fraud, computer fraud, loans fraud and the likes.

According to Oseni (2006) the incessant frauds in the banking industry are getting to a level at which many stakeholders in the industry are losing their trust and confidence in the industry. Corroborating the view of Oseni, Idolor (2010), stressed that the spate of fraud in Nigerian banking sector has lately become a source of embarrassment to the nation as apparent in the seeming attempts of the law enforcement agencies to successfully track down culprits. Although the incidence of frauds is neither limited to the banking industry nor peculiar to Nigeria economy, however the high rate of fraud within the banking industry, calls for urgent attention with a view to finding solutions. Fraud in its effect reduces organizational assets and increases its liabilities. With regards to banking industry, it may engender crises of confidence among the banking public, impede the going concern status of the bank and ultimately lead to bank failure (Adeyemo, 2012). According to kimani (2011) `A way of making money is to stop losing it. The level of fraud in the present day Nigeria has assumed an epidemic dimension. It has eaten deep into every aspect of our life to the extent that a three years old child talks about 419, the name given to the newly discovered advanced fee fraud that is hunting our nation.

“In July 2004, central bank of Nigeria (CBN) unveiled new banking guidelines designed to consolidate and restructure the industry through mergers and acquisition. Banks and Other Financial Institutions Act (BOFIA) 1991, section 15, was also designed to prevent fraud and to make Nigeria banks more competitive and able to play in the global market.

The Nigeria Deposit Insurance Corporation (NDIC) 2007 annual report and statement of accounts report that cases of attempted frauds and forgeries in insured banks, as at 2007 exceeded what was recorded in the year 2006. For instance, the NDIC report for 2007 disclosed that a total of 1,553 reported cases of attempted frauds and forgeries involving over symbols ₦10 billion compare with 1,193 reported cases of fraud and forgeries involving ₦4,832.17 billion in the year 2006. The foregoing statistics clearly unfolds the extent to which fraud had had eaten deep into the financial strength benefit the perpetrators to the department of another person”.

Today, banks cannot withstand the growing pressure of competition among various banks due to the monster called bank frauds. If this act of fraud is not arrested, it might delete our resources because foreign investors might not find it wise to transact business via our banks.

1.2: STATEMENT OF THE PROBLEM

Since evolution banks have been experiencing fraud, this tends to affects the performance and the profitability of banks and may possibly lead to distress. The larger society expects greater accountability, fairness, transparency and effective intermediation from banks, ensuring that they carry out their responsibilities with sincerity of purpose and unquestionable integrity with respect to their operations as a means towards earning public trust and goodwill. The banking business has become more complex with the development in the field of Information and Communication Technology (ICT) which has changed the nature of bank fraud and fraudulent practices. Berney (2008) observed that customers rely heavily on the web for their banking business which leads to an increase in the number of online transactions. Gates, Jacob and Malphrus (2009) assert that the internet provides fraudsters with more opportunities to attack customers who are not physically present on the web to authenticate transactions. In Nigeria, in spite of the banking regulation and bank examination by the Central Bank of Nigeria (CBN), the supervisory role of the Nigeria Deposit Insurance Corporation (NDIC), and The Chartered Institute of Bankers of Nigeria (CIBN), there is still a growing concern about fraud and other unethical practices in the banking industry. This study thus, examines the extent to which fraud and other unethical practices have affected the Nigerian banking sector both in the past and present.

1.3 OBJECTIVES OF THE STUDY

The main purpose of this study is to conduct an empirical examination on fraud in the baking industry in Nigeria, finding out how much is involved, identifying the causes, and ascertain the principal types of fraud currently plaguing the banking industry. The researcher intend to arrive at the following sub objectives;

1. To identify the causes of bank fraud in Nigeria.
2. To identify the level of bank fraud in Nigeria.

• To examine the efforts of government and its agencies in the prevention and control of bank fraud in Nigeria.

1. To examine the extent to which environmental or social factors contributed to bank fraud in Nigeria.

1.4 RESEARCHER HYPOTHESES

H₀: Lack of adequate motivation is not a major cause of fraud in the banking sector in Nigeria.

H₁: Lack of adequate motivation is a major cause of fraud in the banking sector in Nigeria.

H₀: Looting of fund by bank manager/directors does not constitute the major form of fraud in Nigeria.

H₂:  Looting of fund by bank manager /directors constitutes the major form of fraud in Nigeria.

1.5 SIGNIFICANCE OF THE STUDY

It is believed that at the completion of the study the findings will be very useful;

To Banks and Financial Institutions as it will be beneficial to the authorities concern with banking operation, managements, staff customers and prospective investors in the industry so as to identify the various means (theft, embezzlement, forgeries etc.) employed in defrauding banks and to identify the cause of frauds in banks in Nigeria. To government as they will find this work relevant to future policy and decision making with particular to restructuring its agencies for better performance in detaching frauds in Nigeria banks. To the general Public the study will be so useful because the banking industry touches the life of everyone in an economy. Banks all over the world have contributed immensely to the economic growth and development of nations. As such, problems such as fraud which can hinder the smooth operation of the banking industry should be viewed with all seriousness in other not to intercept or destroy the rate of development. Finally, to academia it will also be beneficial to people who will intend to carry out further research in this area, to find this study relevant in their research.

1.6 SCOPE AND LIMITATION OF THE STUDY

This study centers on fraud in the Nigerian banking industry with a keen interest on four (4) insured banks. The four insured banks covered includes United Bank for Africa Plc, Diamond Bank Plc, First Bank of Nigeria Plc, Zenith Bank Plc, all in Nigeria. In the cause of the study, the researcher encounters some limitations which limited the scope of the study;

Staff Reluctance: In most cases the staff of the used study often feels reluctance over providing required information required by the researcher. This result in finding information where the structured questionnaires could not point out.

Researcher’s Commitment: The researcher, being of full time student spent most of her time on other academic activities such as test, class work, assignment, examination etc which takes average focus from this study.

Inadequate Materials: Scarcity of material is also another hindrance. The researcher finds it difficult to long hands in several required material which could contribute immensely to the success of this research work.

1.7 DEFINITION OF TERMS

Fraud: In law, fraud is deliberate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud itself can be a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compensation), a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities) or it may cause no loss of money, property or legal right but still be an element of another civil or criminal wrong.

Banking sector: The banking sector is the section of the economy devoted to the holding of financial assets for others, investing those financial assets as leverage to create more wealth, and the regulation of those activities by government agencies.

Financial Crime: Financial crimes are crimes against property, involving the unlawful conversion of the ownership of property (belonging to one person) to one’s own personal use and benefit. Financial crimes may involve fraud (cheque fraud, credit card fraud, mortgage fraud, medical fraud, corporate fraud, securities fraud (including insider trading), bank fraud, insurance fraud, market manipulation, payment (point of sale) fraud, health care fraud); theft; scams or confidence tricks; tax evasion; bribery; embezzlement; identity theft; money laundering; and forgery and counterfeiting, including the production of Counterfeit money and consumer goods.

Nigeria:  is a federal republic in West Africa, bordering Benin in the west, Chad and Cameroon in the east, and Niger in the north. Its coast in the south lies on the Gulf of Guinea in the Atlantic Ocean. It comprises 36 states and the Federal Capital Territory, where the capital, Abuja is located. Nigeria is officially a democratic secular country.

Economy: The economy is defined as a social domain that emphasizes the practices, discourses, and material expressions associated with the production, use, and management of resources’. Economic agents can be individuals, businesses, organizations, or governments. Economic transactions occur when two parties agree to the value or price of the transacted good or service, commonly expressed in a certain currency. Monetary transactions only account for a small part of the economic domain.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.

 

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