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AN EXAMINATION OF FRAUD DETECTING TECHNIQUES USED IN THE NIGERIAN BANKING INDUSTRY

 Format: MS-WORD   Chapters: 1-5

 Pages: 88   Attributes: STANDARD RESEARCH

 Amount: 3,000

 Aug 10, 2019 |  07:02 pm |  2170

ABSTRACT

This research is focused on fraud detecting methods used in the Nigerian Banking Industry. The main objectives of the study is to identify the various means of defrauding Banks, to identify the causes of frauds in Banks, to determine the effects, magnitude and frequencies of fraud in Banks, and to suggest measures that can be taken to prevent and or control fraud in the Banking sector.

In a bid to effectively carry out this study, some Banks were randomly selected in Kano metropolis namely First Bank Plc.Union Bank Plc, United Bank for Africa, Afri Bank Plc and Zenith Bank Plc.

Two methods of data collection were used for this study. The primary source of data included questionnaires and direct observation on some of the activities of the members of staff of the Banks and their customers. The Secondary source of data included text books, internet, financial times, Banks annual report of fraudulent theft, alert journals, annual reports of Central Bank of Nigeria, and Nigerian Deposit Insurance Corporation.

From the analysis of the data collected, it was discovered that ineffective and inefficient control was the major cause of fraud in the Nigerian Banking sector.

The data also revealed that fraud contributes significantly to the distress in the Nigerian Banking industry. I recommend that effective and efficient management team must be put in place in order to minimize fraud in the Nigerian Banking sector.



CHAPTER ONE

    INTRODUCTION

1.1       BACKGROUND OF THE STUDY

There is a genuine fear that the increasing wave of bank fraud is causing a lot of havoc in our financial systems. This is because the bank fraud has eaten deep into every aspect of the banking system to the extent that many banks have lost the confidence of their customers. Adewumi et'al (1986) defined fraud as "Deceit or trickery deliberately practiced in order to gain some advantages dishonestly" For an action to constitute fraud therefore, there must be dishonest intention, and the action must be intended to benefit perpetrator to the detriment of another person.
Oxford Advance Learners Dictionary of Current English defines fraud as "Criminal deception". According to Udok (1992), fraud is concerned with the activities of those who seek to divert to their pockets the fruits of others handwork. In general, fraud could be said to mean any activity that amounts to unfair dealing. In legal parlance, fraud has been defined as the act of depriving a person dishonestly of something, which is, or of something to which he is, or might be entitled but for the perpetration of fraud.

Fraud in banks are not new, they are as old as the industry itself. However, like in the greater societies, it has become one of the most hard to manage problems of modern day banking. While the concern of the banking community is growing day by day and management vigilance is improving with the help of computerization amongst others. It is pertinent that millions of naira is still being lost to fraud on daily basis.

While some of the frauds are the handwork of outsiders, others are perpetrated by the staff and sometimes management of the banks concerned. The most significant percentage of fraud is done by fraudsters in collaboration with bank staff. As a result of this, very serious economic crimes, some staff in the industry have either been dismissed, or have their appointment terminated or prematurely retired. This means that some experienced staff in the sector are lost due to their involvement in fraud. The involvement of some bank executives in large scale fraud is now a source of serious concern in the industry.

Following the lubrication of the financial sector which was part of the structural Adjustment programmes (SAP) introduced in 1986, the banking industry has witnessed tremendous institutional growth. According to Ebhodagbe (1997), the number of banks increased from 15 in 1970, to 115 in 1996.As it is said in economics, numbers give rise to competition. But along with this institutional growth and competition was the growth of fraud, corrupt practices and mismanagements. This problem became alarming between 1992- 1995 with the unprecedented upsurge in bank fraud particularly the new generation banks. Various types of fraud have been carried out in the banking industry and tried in courts and bank malpractice tribunals. But the fact still remains that these acts have led to unhealthiness, technical insolvency of banks, erosion of public confidence and massive distress etc in the Nigeria banking industry. Financial analysts see fraud as leakage in the economic system because frauds obtained through these means are rarely invested back into the system.
Fraud cut across all sectors of the economy and the size of an enterprise usually determines the volume of fraud perpetrated. Equally, problems of inadequate manpower and manpower training, poor internal control system, inadequate incentives and unsuitable legal framework for dealing with offenders contribute to the perpetration of fraud.
In addition to these, the lack of commitment on the part of the staff and the employment policies of some banks tend to make fraud attractive. The high rate of fraud in banks is clearly Unacceptable. Something drastic must be done to urgently stem the tide in view of its image implications for the banking industry and the crises of confidence, which it could cause among bank customers.

1.2 Statemenet of problem
The monumental growth and transformation witnessed by the Nigerian banking industry brought with it some sharp practices which metamorphosed into wide spread fraud which is contrary to the desire of any economy. Considering the Nigerian experience in recent past, where fraud, corruption failures and distress have become the order of the day, the question that comes to ones mind is: can we leave this crucial sector\industry to the idea and behaviors of the operators? In order to prevent a collapse of the payment mechanism, encourage monetary stability, ensure an efficient and competitive financial system, protect customers' interest and ensure a safe and sound banking industry, government has taken steps to regulate the banking industry and various banks have sent their staff on a variety of training to enable them provide better services. But despite all these, operators and staff of the banking industry however, engage in activities that are contrary to the objectives and ethics of banking. The problem here includes: what are these activities? Who are the perpetrators? What are the reasons why such acts exist, and what can be done to minimize, if not eradicate them? It is so for many reasons a matter of growing concern the increasing incidence of fraud in the banking industry. The concern is that over the last decade or so, fraud and irreregularities have assumed an alarming dimension in terms of magnitude, sophistication, audacity and damaging propensity. Fraud results in Unwarranted losses for the bank and very importantly, fraud literally clips off a bit of the publics confidence in the orthodox financial institution that banks are, and delay the full development of banking habits in the citizens and in extreme cases leads to the complete failure of the bank. A more growing concern of recent is the categories of staff involved in fraud. More and of the middle and senior/management staff of banks are increasingly being attracted by the lure of fraud, and the successful prevention of a specific fraud, gives rise to a more complex one by the perpetrators.

1.3       HYPOTHESIS

Hypothesis refers to an experimental statement, tentative in nature, showing the relationship between two or more variables. It is open to test and can be accepted or rejected depending on whether it agrees or disagrees with the statistical test.
The study will test the validity of the following hypothesis

1.           Ho:      The quality of employees does not affect number of fraud in the

banking industry

H1:      The quality of employees affects fraud in the banking industry.

2.           Ho:      Lack of motivation is responsible for frauds in the banks.

H1:      Motivation discourages fraud in banks.


The study centers on fraud in the Nigerian banking industry with a keen interest on commercial banks in Kano metropolis. It recorded cases of fraud in the Nigerian banking industry, what constitute fraud, causes of fraud, most common types of fraud, their effects on the banking industry, fraud detecting methods and recommendations for controlling and prevention of frauds in the Nigeria banking industry.

1.5       LIMITATIONS OF THE STUDY

Limitations are those factors inherent in research sturdy that might have affected the process of data collection for this research work.
One of the major limitations is the organizations Unwillingness to give out necessary data that will have assisted in the conduct of this research work effectively. Reports from the Nigerian deposit Insurance Corporation on cases incomplete. Also, the information obtained from the known members of staff- retired or dismissed, during the period with in which the fraud cases of fraud filed by various banks were in most cases incomplete. Also, the information obtained from the known members of staff of the banks was given on the condition of anonymity because of the sensitive nature of the research topic. Likewise, the researcher could not reach old members of staff-Retired or dismissed, during the period within the fraud cases were perpetrated to tell their own part of the story, and what could have been the cause or the motivating factor for their fraudulent acts.

Another limitation is the current harsh economic conditions in the country. Time was another factor which limited the coverage of the scope of this study adequately. All these factors prevented the researcher from going round as many banks as possible in order to survey large quantity opinion on the research topic. The findings therefore, from this study are based on information that is obtained from commercial banks in Kano metropolis. The findings have been generalized on all banking systems in Nigeria.

1.6       OBJECTIVES OF THE STUDY

The purpose of this research is to critically examine fraud detection techniques used in the Nigeria banking industry, using banks in Kano metropolis as case study. Specifically, the objectives include:

a.           To understand the nature of fraud in the Nigeria banking industry.

b.           To identify and look into the cause of fraud in the Nigerian banking industry.

c.            To analyze the extent and effects of fraud on the banking industry and economy in general.

d.           To proffer ways of detecting, preventing and controlling fraud in banks.

To review existing literatures on fraud, as well as irregularities in banks.

1.7   Text Box: e.JUSTIFICATION OF THE STUDY

The study will be useful to the general public 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 operations of the banking industry should be viewed with all seriousness in other not to intercept or destroy the rate of development.The efficiency of the banking industry is a necessity for the proper working of a nation. Thus, this study would be of great use to authorities concern with banking operations, managements, staff customers and prospective investors in the industry. In Nigeria, bank fraud have assumed a frightening scale and sophistication consequent upon the general economic depression of the last decade and the continuing travails of the banking sector in the wake of government frantic policy experimentation. The study will therefore identify the various means (Theft, embezzlement, forgeries etc) employed in defrauding banks. It will also identify the cause of fraud in banks which may be institutional and societal i.e. factors traceable to the internal and external environments of banks respectively.

The study will also identify the various types of fraud and forgeries (ranging from misappropriation of money, goods or other resources belonging to the employers, forging signatures of important officials and falsification of records and accounts) perpetrated in banks.

DEFINITION OF TERMS.

1.           BANK:

An organization that provides various financial service, for example keeping or lending money.

2.           FRAUD.

Any act of deceiving in order to make money or obtain goods

3.           COMMERCIAL BANK

Banks that concentrate on cash deposits and transfer of service to the general public, offer to be fraud on the high streets.

5.           ERRORS

Mistake or something done wrongly

6.           DUD CHEQUE

A forged or worthless cheque.

7    PERPETRATOR

A person who commits the act of fraud

8    CHEQUE KITTING

Method where a depositor utilized the time required for cheque to clear to obtain an authorized loan without interest charge.

9    CALL OVER

A system of check and balance in banking operations

10.    COLLUSION

The act of fraud perpetrated with the connivance of different people.

REFERENCES.

Adewunmi Wole (1986): Fraud in Banks - An overview' Nigerian Institute of Bankers, Lagos, P.3.

Babatunde E.D. (1987): Precipitating Factors and Criminal Motivation. Financial Institution Training Center, Lagos p6.

Layinwole Ashadele (1993)

Fraud: Causes and Prevention Dialogue. United Bank for Africa Plc. Lagos No76 Pg 11 and 12

Sydney I.F. (1986): Management Control System and the Prevention and Detection of Fraud in Banks. Nigerian Institute of Bankers and Land Mark Publications Ltd, Lagos, Page 11- 254.

Suleiman A. Karwai (2002)

Bank Fraud: Can Shariah Prevent It ?

Journal of Business Administration Volume II, Number 1 of January 2002. Page 62­71.

27 Banks Report N1.1 Billion frauds in one Month" The Punch (Newspaper, Punch) (Nig.) Lagos Vol. 17, No 18724, Page 1 and 8.

Transparency International (TI) Year 2000. Corruption Perception Index.

TI Publication, London, Page 1

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