Bank Frauds – Detection and Control of Financial Frauds in Nigeria Banking System
The history of fraud is as old as man himself. This before the year 1340 A.D. There were some systems of checks upon people who there business was mainly to record the financial transactions on behalf of their masters and others in the medieval Egypt, Greece and Rome. The person who had the responsibility of making such an examination of account was know as auditor. To order the Complete Project Material, Pay thr Sum of N3,000 to: BANK NAME: FIRST BANK PLC ACCOUNT NAME: CHIBUZOR TOCHI ONYEMENAM ACCOUNT NUMBER: 3066880122 Then send the Project Topic, Your Email Address and Full Name to 07033378184.
Great impetus was letter given to trade and commence by the Halians by the 11 century. And this gave rise to the evolution of and this gave rise to the evolution of accounting system as evidenced in LUCA PACIOLO Treastise. DE COMPUTIS ET SCRIPTURIS ET SCRIPTURES (ie of RECKONING AND WRITING) in one this books. Accounting profession was still in its embryonic stage then.
The year 1844 witnessed a momentous events in the history of accounting and auditing. That year the first company’s ACT was introduced by Gladstion. This joint stock Act separated the ownership (ie) providers of funds (shareholders) from the company’s director is management and requires a periodic financial statement to be produced. The shareholders needed assurance as to the security of their investments. The Act having regulated by the stock companies stated fully and fair view (nowadays called true and fair view) of the companies activities should be given to shareholders by way of company’s balance sheet. At first Auditors were appointment amongst the company’s shareholders and there was no proper audit work just like in other countries of the world fraud and forgeries in the Nigeria banks have grown to such an alarming state that it is worth mentioning in this stage. In 1892, the first bank, the Africa banking corporation was established in Nigeria. during the first commission of inquiry in 1948 the British and French Bank came into existence in Nigeria which was later became United Bank for Africa in 1961 with head office in Lagos. UBA plc is a replica of the Golden mean-not performing so badly as to be blown off the scene by the wing of distress syndrome and not performing so creditably as to be ranked amongst the members of billion naira chubs banks.
However, the author is able to lay hand on the comprehensive and commendable write-ups on the subject matter. These will be research-viewed among the following headings.
1. Who are the banking fraudsters
2. Frauds and fraudulent practice in the banking service
3. The legal frame work and fraudulent practices
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WHO ARE THE BANK FRAUDSTERS
Most common types of fraud and forgeries perpetrating in the Nigerian banks are from the staff of the bank. There is no art to find the minds construction on the face. In line with the above saying, one would therefore concourse that it is very difficult to say that this or that fellow is a fraudster. One thing that is clear that it is a common saying that the banking sector of the economy is a prostitute welcoming anyone that taps at its door. This depicts that fact that the sector employs persons destitute of the ethics of the profession. this explains why much fraudsters are sound in the profession.
That not withstanding, Usman Bellow outline the possible fraudsters in bank as
a) Bank staff: The principal actors who are conversant with the in out of the bank eg cashiers.
b) These outsider who exclusively commit fraud without the assistance off Bank staff. They are experts in signature forgery and manipulators of credit advances.
Mr. Echi Friday of UBA plc Nigeria station road observed that all know cases of fraud in the banks have in one way or the other involve staff serving in the branches.
He further commented that “it is very negotiable that insipte of the reasonable sums paid as salary and fringe benefits yet fraud is still in existence.
Mr. Chuks Onodugo, a staff of first bank plc Plaza house Onitsha in an exclusive interview here in Enugu, assert that frauds in bank are committed by dave-evit independent criminal who take advantages of the loopholes in the procedure in banking system. He further observed that character of the staff fraudsters are typical they are the most popular among the staff and customers always ready to work, commanding respect and absolute confidence of the colleagues.
Professor W. O. Uzoaga assert that the press is replete with reports of case of forgeries and fraudulent acts aided and abetted by bank staff. There has also been reports of “our loading of deposits for the ultimate benefit of bank employees who collide with fraudulent depositors. He cited a case where the old currency notes wee illegally removed from the incinerator in the processes of burning at the bank and returned them into circulation. He equally made reference to the cse of fir employees of the central bank of Nigeria, who are still standing trial then for forged telex message allegedly designed to defraud the bank of N21 million in its international transaction and more are still happening in the Nigeria. Banking system presently, all these malpractices constitute a said commentary on the banking system. The fraudster gave rise to the present distress in the banking industry coupled with the already existing economic recession due to global crisis even in the oil sector.
Dr. Udee M. O. of ESUT observed the bubble of the boom in this industry burst thereby letting lose the ghost of distress bank from early 1990 therefore banks are no longer at ease.
Mr. G. O. Nwankwo regretted that by 1966 about 40 commercial banks was registered in Nigeria and subsequently more was licensed in Nigeria but it was few banks that are viable and the medicine to cure the cornice disease has not been discovered ie the fraud syndrome.
FRAUD AND FRAUDULENT PRACTICE IN BANKING SERVICES
Of all the problem facing the Nigeria banking system today, that of fraud is easily the most intractable. Bank fraud is no longer a news. This can draft be committed such as:
a) Fraudulent withdrawal of money from customers account by bank staff. This can easily be done by forging the victims signature.
b) The alternation of instruments like house cheques or bank draft.
c) Granting unauthorized credit in exchange of uncleared effects cheques kitting.
d) Diversion of unutilized foreign exchange
e) Blotting of account numbers on cheques and forging the account holder’s signature
f) Fraudulent inflation of expenditure incurred like over charging on purchase invoices, uncharging of sales invoices.
g) Unauthorized transfer of customer’s lodgement to staff account.
h) Fraudulent suppression of loan application and or operation of loan account.
i) Withdrawal and suppression of cleared cheques (whether customers or staff cheques)
j) Fraudulent manipulation of central bank of Nigeria clearing cheques.
k) Fraudulent manipulation of figures.
Our people are esteemed and reclined in term of their outward display of wealth and possession. This is to say that socieity respects wealthy one without any inequity on how one made the money. Therefore some men/women will then plan to defraud either the government, individual or banks. We have a bad value system in our society.
DEBASED MORAL STANDARDS
Pen-robbery stealing and even armed robbery are perpetrated by some members of the society who already have debased moral standard.
As a bank staff your peer group might be expecting to have in possession all that it takes to live a comfortable life. Money is the roof of all evil so said man adage. This group could be of the same profession. But they might not be enjoying the same package due to unequal conditions of services in bank so in order to meet up, some who felt that they were lagging behind plan to defraud so as to argument their financial deficiencies. Some innocent staff act. They will be used with no consent. This is as a result of the influence of bad gang and peer groups. This occurs when one lives above ones means. Writing in banking review magazine, Ralph Odume is of the opinion that bank fraud has assumed new dimension and have developed the modest efforts to produce counterfeit coins and notes to multimillion naira computer fraud.
Oladele Olashore, agrees that the effects of fraud on banking services have had simply to a decline in quality services and consequently banking habit.
Ralph Odime, contributing further, says that the fraud situation has reached on alarming state that even notes. Bank draft, guarantees indemnities and other security instruments used by bank are subjected to long gueves, delays in obtaining any service from banks.
Mr. Okigbo plus in his observation say that the defence that the scrutinized delay. Long quenches etc. is for the protection of the customer is evasive since the fact must be noted that it does not suit with the public.
In his own contribution, Omolga A. Adeny, says that fraud and fraudulent practices has brought this century in disrepute in the international finance scene. Perhaps the most apt summation of this was the following statements credited to an executive director of west minister bank one of the United Kingdom largest bank and published in July 6, 1993 of Guardian paper – “if there was a world cup of fraud, Nigeria would always be in the finals. Unpleasant as this might sound, the fact is that it shows the extent of financial mistrust Nigeria has cultivated abroad.
Some youngsters in our society do engage in all sort of fraudulent activities and other vices as a vendetta to the society. A very wealthy country like Nigeria has been improvised by few selfish and avaricious individuals. And all of the Suddent it became the poorest wealthy country in the world over. This resulted to the highest degree of unemployment joy insecurity. Retrenchment, high crime wak social instability and hopelessness exploitation and extortion etc.
Consequently some of the rejected youths in order to survives embrace various bank fraudulent activities as a means to leach. Vengeance on society that do care for them. The drift continued unit the advent in early 1990’s when hydra headed monster called “the advance fee fraud” scam popularly called 419 or OBT obtainable by trick with the advent of the advance fee fraud (AKA 4119) bank frauds has grown from millions to billions of naira and foreign currencies.
THE LEGAL FRAMEWORK
The pre-occupation of this section is to emplore what the previous writers say about the role of the law court in checking financial frauds in Nigeria banking systems and the ability of the banks and customers in the event of any loss resulting from fraud. As it starts now our legal system is enough to deter frauds committed in the banking sector. But the major obstacle is the administration of the system. Our courts are bad riddon with lots of problems and inadequacies. At present our courts are congested and as such it takes more months for cases including those of financial fraud to be disposed. This may be as a result of lack of fraud, judges, magistrates making quick dispensation of justice difficult.
Commenting on the administration of justice pio Egbayamd contended that the procedure for investigation in most of the bank financial fraud by the police is still at snail speed. This again could be attributed to lack of frauds to procure materials and equipments needed for efficient and effective investigations of criminal matters. This is necessary to avoid the tool rampant discharged and acquainted on technical fraud.
Mr. Onwuzulike Kyrian has the opinion that the judiciary has within its rim bit behenently supported fraud. He ask what rationale his behind the furring outprit who defrauded his establishment to the tune of N40,000 (forty thousand naira).
Alhaji Usman Bellow in another contribution contends that the law is limited to crime of frauds and advocate for a law review to prescribe stiffer penalty for fraudster in order to deter them. it is said that when the going, tough, let tough get tougher and continue going. When push comes to shone, people could them opt for living. Going by the observation the author was of the view that Nigeria is going in policy formulation but does implement it. Fraud as owned aas man is a disease that deserve complete elimination. Therefore another should be performing their work with good faith whle exposing their views.
On the liability of the banks and customers on the occasion of any fraud in a bank. O. A. Adenyi, bunmi Fagbomi and Fani Adenkayo Macle encouraging contributions. These are to be discussed in the following manner.
a) Liability for losses occasioned by forged mandate cheques are keys to the various accounts once they carry the genuine signatures of the accounts holders. But often Rogues lay hands on the cheques leaves /booklets and get them presented and payment is effected, the customer upon discovery invariable demands for his account to be reimbursed. The law of this according to A. O. Adenyi is that the bank should bear the loss. The customer is entitled to reimbursement for whatever amount is involved. Bume Fagbemi maintained that the bank bears the loss because he has death with the fund without the customer’s mandate.
b) Liability for payment after forged endorsement: commenting further on the liability of the bank and customer on the occasion of any fraud in a bank, Pagbemi says that a banker who honours a cheques in favour of a person who has fraudulently forged or endorse it. The position of the law is that the bank has not supplied with the mandate. In order words, the instruction of the customer is that the bank should pay a particular person is not satisfied by the payment to an authorized person.
c) Liability for losses occasioned by cashed fraud: The losses may result from outright theft by the cashier. The position is that the depositor is fully entitled to the money.
d) Liability for losses occasion by falsification of account: where the account falsified involves treatment of a debit as a credit and the whole account later withdrawn, this amount to stealing the bank money. And invariable the bank had to bear the loss.
In Nigeria, there are adequate laws in our statue books. Nevertheless malpractices have not only became widespread by or compounded by the fact that even the government cheques frequently “bounce for one reason or the other. It is inconceivable that a treasury cheques, a central bank cheques issued by a department of the government can bounce.
In any view, there is no experience, more calculated to destroy confidences in the banking system.
WHAT IS BANKING FRAUD?
According to dictionary of Banking fraud is defined to mean an act or causes of deception deliberately practiced to gain unlawful or enfair advantages such deception directed to the detriment of another, fraud can also be described as a conscious premeditated action of a person or group of persons with the intention of altering the ruther and or fact or selfish personal monetary gain. It involves the use of deceit and trick and some time highly intelligent cunning and know how. The action usually takes the form of forgery, falsification of document and authorizing signatures and outright theft.
When one decides to defraud, it measures to deprive a person dishonestly to something which is his or might but for the perpetuation of the fraud be entitled. In another article ‘fraud in banks” bank fraud is understood to mean on act of intentional and criminals deception by the perpetration which is sought to gain some unfair, unpleasant and dishonest advantages. In the eyes of practicing banks, any record measure by a bank official or a group of officials in a customers account resulting into payment of an among by the bank of a wrong and factious hand with a view of gaining unjustifiable advantages in preferences to the rightful owner can be termed as a fraud.
Femi Adekanye a seasonal and professional banker legally defined fraud as the act of falsifying or altering any writing for the purpose of doing injury to another person.
To an accountant, fraud constitutes any act or omission to act of a deceitful and therefore dishonest nature, or negligence so gross as to constitute fraud. Fraud may constitute of felony or misdemeanor and could be called other names as misappropriation, defalcation and larceny. Fraud is always a crime or fort. The researcher found the above definitions very appropriate, adequate and acceptable for the purpose of this research work because they contain the two main elements of fraud and these includes:
i) There must be unfair and dishonest advantages based on the concept of one man’s loss via another man’s gain.
ii) There must be decent, tricky or bread of confidence.
As to what the word fraud is all about, it will be generally acceptable therefore at this juncture to determine the sources and reasons for fraud.
SOURCES, FORMS, AND CAUSES OF FRAUD IN UNITED BANK FOR AFRICA
In United Bankf for Africa, fraudsters and forgers involves the professional men and women who are always conversant with the banking systems, procedures and who equally seek to enlist the support and co-operation of the dishonest members of the bank staff. The men of under-world who are always ahead of the bank in planning and it is also difficult for the bank to predict when and how they will strike. These fraudsters always thank of evil and foul because that is their stock-in-trade.
Reasons for fraudulent acts are to cover larceny or embezzlement and in the utterance of a false position particularly those positions of misleading stock holders, creditors or other interest partners. Another reason emanates from a weak and bad internal control system.
Below are some of the factors that facilitates fraud in United Bank for African (UBA)
a) Poor management; This is often manifested in various ways. Lack of adequate supervision is a manifestation of poor management. This causes fraud. When the junior staff are inadequately supervised those with fraudulent tendencies amount them get the impression that their working environment and/or circumstance is safe for the perpetration of fraud.
b) Inadequate control: Inadequate control in the form of effective policies, procedure and systems in indicative of poor management. When controls are inadequate, loopholes became glaring to the fraudulent minded operator in the system and he sees it as opportunity/he must avail himself of few bank nowadays, however, can be said to lack the basic collection of control policies and procedures which they requires for acceptable level of efficiency. They problem many a times is with the deliberate skipping of the law down regulations, procedures and time tested practices of the employee’s bank.
c) Frustration: Is sometimes a reasons for committing fraud in bank. When the expectations of some workers are not methodology by the management in terms of promotions or financial rewards, they because frustrated. Unfortunately these frustrated workers are their own judges for their contributions to the progress of the bank. Sometimes if not most times indeed, these perceptions are jaundiced and out rightly wrong. Nevertheless they lead the employee to commit fraud and compensate themselves for they were due for legitimately fairly.
d) Dishonest bank staff: In United bank for Africa (UBA), there are at least two out of five reported cases of fraud in the bank involving the staff, the members of staff of the bank equally.
CAUSES OF FRAUDS IN UBA BANK
i. Greed: A drive to acquire gains far beyond one’s income and immediate or long – term needs (FITC) pg 16. This is what Archibong describes as “get-rich quick syndrome” (1992: 108) a extravagant life –style and greed are dangerous.
ii. Genetic Cause: This has something to do with heredity, a situation whereby characteristics are passed on from parents to offsprings. A case in point is a kleptomanica who has a pathological desire to steal for the sake of stealing.
iii. Absence of divine control: A character devoid of divine regulation can easily be infected by the societal pollution ore corruption. A banker that has the fear of God will always have the power to resist temptations to defraud his/her employer.
iv. Poverty: There is a common saying that necessity is the mother of invention. People get entangled in forgery, record falsification teeming and leading, cash theft, over-invoicing, computer manipulation or armed robberies as the result of poverty through poor income.
Other causes of frauds may be described as remote. These include:-
a) Poor internal control system
b) Lack of proper training
c) Poor bookkeeping
d) Absence of defined job schedule.
e) Inadequate staffing
f) Protracted absence or suspension from clearing house
g) Clearing agency for community and distressed banks
h) Non-rotation of clearing duties.
i) Socio- political factors
j) Economic factor
k) Poor clearing facilities.
l) Ineffectiveness of law enforcement agents.
THE EFFECTS OF BANK FRAUDS
The distress syndrome
Bank frauds tend to jeopardize the industrial growth as most banks had already gone under due to distress while some are still battling with distress syndrome.
Bank failures in Nigeria has gulped more than N40 billion so far from innocent depositors. This represents the totl deposits of the distressed and potentially distressed banks in 1996 as published by Nigeria deposit insurance corporation (NDIC).
Efforts to eliminate distress in the industry include:-
i. Self –sanitizing exercise: This includes a rationalization and retrenchment of staff, dissolution of board of directors and election of new ones recapitalization, direct acquisition by and merger with other organisation, etc.
ii. Direct offer of bank for sales: This is usually arranged by the Central Bank of Nigeria and 11 banks were already offered for sale.
iii. Establishment of fared banks tribunals: The federal government established tribunals in consonance with the failed banks (recovery of debts) and financial malpractices in banks decree no 18 of 1994. The tribunals are empowered to try bank directors managers, staff and customers who were involved in one form of fraud or the other such trial involves forceful recovery of stolen money and property as well as imprisonment of the culprits.
iv. Bank restructuring: Diverse are put in place to rehabilitate distressed licensed banks in most cases the regulatory authorities act as facilitators.
v. Liquidation: Most distressed banks which failed to meet the re-capitalization requirement were forced to wind up.
LOSS OF BANK’S FUNDS
Frauds had caused hardships on banks especially those whose liquidity state was already in doubt. As frauds cases in banks continue to rise, banks losses in terms of money also rises as depicted in the table below.
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