Fraud in the Banking Industry – The Nigerian Perspective

Fraud in the Banking Industry – The Nigerian Perspective

Fraud is the number one every of the business world. No company is immune to fraud. It is in all works of life in the government in insurance in export  trade, in banking everywhere special organizations have been formed to combat it, and international police commission tries to deal with it at international level but it has not and cannot be eradicated. It is waxing in strength, its an expanding industry. However the researcher was able to lay hands on some commendable write-ups on the named topic.

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The 1998 Nigeria deposit insurance corporation (NDIC) annual report on fraud and forgeries cases fin commercial banks. However the number of reported fraud cases increased by about 20 percent from it 17 in 1997 to 564  in 1998 on the other hand the total amount involved in reported loses in 1998 reduced to N3,129.16 million from N3,590.31 million in 1997 though the actual I expected loss stop at a higher level of N673.5 in relative to N224.54 million in 1997 according to write up on fraud by central bank of Nigeria the common forms of fraud are organization fraud, confidence schemes (Aka 419) and occupation fraud (management employee, computer,  procurement and financial reporting fraud).
The Smon of the underworld who are principally involved in bank fraud are always ahead of the bank planning, and it is difficult to predict when and how they would strike. They are people whose intelligent quotient (I.Q) is much higher than the average banker. The fraudsters think and act fast because that is the stock in trade.

Fraud according to the dictionary of banking by ferry, it is an act of deception directed to determent of another” in legal terms fraud has been defined as the act of depriving a person dishonestly of something which is might be entitled to but for the propetration of fraud Baba Ahmadu (1995) defined fraud as a deception with a view of getting an average over unsuspecting victim there is a general consensus amongst criminologists that fraud is caused by three elements  namely: will opportunity and Exit the will to commit fraud by the individual, the opportunity to execute fraud and the exit which is the escape from sanctions  against successful or attempted fraud or deviant behavior.

In order to be able to propose remedies for eliminating fraud in banks it is useful to identify the commonest  causes of fraud in bank. The causes are usually grouped in two major classes. These are institutional factors and environmental I societal factors the institutional factors all those traceable to the internal environment of the bank while the environmental factors are those which result from the influence of the environment societal factors on the banking industry.

1.    Negligent employees: In certain cases staff negligence could give rise to the perpetration of fraudulent act. Negligence is a product of several factors including poor supervision lack of technical knowledge apathy, pressure and so on.
2.    Poor recruitment policy: Poor recruitment system where cognate experience relevant technical knowledge, competence, character and other storing qualities are sacrificed at the alter of new performance related factors such as connections constitute an important facilitator frauds in bank.
3.    Lack of staff training: This could affect the morally weak as well as the morally robust staff in various ways lock of knowledge of the firm and way of dealing  with fraudulent proactive in banks could affect an otherwise barest staff in apprehending and checking the wits to bank fraudsters.
4.    Undue Exposure: Fraud may be caused in banks where documents of value and liquid asset which are the major stock in trade are exposed to an undisciplined staff.
5.    Frustration: Management practices when negative to the aspiration and development of staff could result in majority of the employees being frustrated frustration in turn breed franstlent practice in banks.
6.    Infrastructure Inadequacies: Poor communication system power break down which result in a backlog of unbalanced postings, congested office spaces etc are some factors that encourage the perpetration of fraudulent act in Nigeria banks.
7.    Inadequate Banking Experience: All things being equal, fraud occurs with higher frequency among staff with little experience in bank practices the more the experience the less the  chances that fraud may pass without being detected. Unless with active support of experienced bank staff where the more experienced bank staff are involved in fraud they are likely to swindle sums of money than inexperienced staff.
8.    Poor Quality Management: Bank with poor management record higher incidences of all salts of fraud tan banks with effective management poor management leads to ineffective and poor control system, indiscipline of staff and thus creates an environment where fraud flourishes.
9.    Inefficient Control: This is a classic example where frauds could be externally generated fraudulent staff and customers could collude to take advantage of the lapses observed in the management control system of corporate customers.
10.    Incompetent staff: Errors may arise when sophisticated machines are used and operated by incompetent staff which leads to production of unreliable records.

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1.    value system: it can be argued that the main cause of fraud in banks in Nigeria is traceable to the general dishonestly in the society misplacement of societal valve, the unquestioning attitude of society towards the sources of wealth, the rising expectation from back staff to live up to such expectations are also contributory factors to fraud.
2.    Delay in enforcement: Liability of enforcement agents to detect fraud and prosecute fraudsters with dispatch encourages underworld men to target banks for all forms of devious and violent attack.
3.    Inadequate penalty: It is argued in some quarters that lack of effective deterrent such as punishment could be a factor that contributes to the unbolting perpetrating of fraud in banks.

There are several ways or methods through which fraud can be committed  in the banks they include.
1.    Teaming and lading: This is a term which explains the suppression of paying in slips by bank officials with the view of defrauding the rightful owner of the fund.
2.    Deflalcation:  This means the removal of cash collected by the cashier from their customers. This leads to declaration of false shortages.
3.    Telex Fraud: This is known as foreign exchange fraud it involves the falsification of transfers to foreign banks by the issuing  bank officials.
4.    forging of bank rubber stamps: some fraudsters forge bank stamp which they use in carrying out some unlawful financial transaction at the detriment of the bank.
5.    Giving value to uncharted effects: Cheques and other financial instruments in course of collection are referred to as unchared effects some bank employees give value to such instrument before they are cleared. I such cheques are returned uncleared the bank  losses the money from his account.
6.    Manipulation of dormant: Account  that are not operated for a reasonable length of time is referred to as inactive, the or dormant account some fraudulent banks staff sometime raise vouchers with  forged signature and withdraw money from such dormant account without the knowledge and authority of the account holder.
7.    Transfer of funds into fictitious accounts: At times fraudulent bank staff may transfer funds to fictitious account there by depriving and true owners of  the fund opportunity to make use of the money.

8.    Manipulation of computer Records: Some officials of banks who work  in the computer section may manipulate wrong input into the computer there by making the bank to suffer some financial detriment.
9.    Under stating and over stating interest charges: This is a fraudulent practice that involves the customer gives him a part of the over credited amount in the case of an overdrawn current account, the staff may agree with the customer to under state interest payable by the customer at the detriment of the banks.
10.    Substitution of names in cred8it vouchers: A fraudulent employee may substitute the name of the true owner of the money on a teller with the name and account number of a fictitious person.

Advance fee fraud also known as confidence schemes and commonly known as “419” the phrase four-one-nine as popularly referred to be members of the general public has become a household phase over time and has made news on both print and electronic media to a large extent. In recent time, it has increased in usage. It has eatied deep into every aspect of our life to the extent that a four year old child talks about “419” the new discovered sobriquet for advance fee fraud that is hunting us as a ration.
This may involve an agent approaching a bank a company or an individual with an offer to excess large fund at below market interest rates often for long time. The general source of such is specifically identified as the only way to have access to, it is through the agent who must receive a fee or commission in advance. As seen as the agent collect the fee he disappears and the loan never comes through my bank desperate for funds, especially the distressed banks and banks needing huge un to bid for foreign exchange, an easily fall victim to this type of fraud.
According to criminal oode, section 419 as written in the law report of the federal republic of Nigeria vol II, part 3, which is known in common English as “obtained by false pretence or other frauds”  legal officers changer I and the law enforcement agencies (police) have therefore popularly abridged it has obtained by trick” the section states  as follows:
Where in any proceeding fro an offence under section 419 or 419A, it is proved that the accused.
a.    Obtained or induced the delivery of any thing capable of, or
b.    Obtained credit for himself  or any person by means of a cheque that is presented for payment within a reasonable time was dishonored in the ground that no funds or insufficient funds were standing to the credit of the drawer of the cheque in the bank on which the cheque was drawn, the thing on delivery shall be deemed to have been obtained by a false pretense unless the court is satisfied by evidence that when the accused issued the cheque he had reasonable goods for delivery and did in fact believe that it would be honored if presented for payment at reasonable time after its issue by him.

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1.    Obtaining execution of a security by false pretense
2.    Cheating or undisclosed dubious transaction
3.    Conspiracy to defraud.

This is the important aspect of these review that will help us to determine the reactionary effect to this problem that has affected out banking industry and also to the entire economy in general the effects of fraud on the baking system is as follows.

The sad and unfortunate incidence of increase frauds and forgeries in the Nigeria banking sectors continued unabated. For this reason suspicion has been mounted on all unsuspecting customers that offer for banking services.

Whenever any fraud occurs there is confusion and tension generated. According to the banking official the adverse effect of police and management inquiries produces an atmosphere of distrust and disruption of normal work and staff are fragranced of taking normal decision and processing normal work for fear of being implicated in the fraudulent transaction.

The Nigeria banking industry is already matching towards improved technology. But this increased mechanization and advancement in computerization has computer fraud. It run the risk of errors malfunction and some other event that can cause losses to a bank.

When fraud is discovered, the usual recrimination involve tends to lower the interest of the staff and generally an aparty toward rendering service would result and their dynamism is impaired. This brings lower output.

An attempt if fraud requires a through investigation by the management. The investigation involves a lot of time on the matter and less an other duties. It is the duty of the management to protect the owner’s fund trusted in their care.

Fraud has a devastating effect on the economics development of any nation. The implications are discussed as follows in NDIC annual report 1999 during the year the average number of reporting bank stood at 39 for quarter as against 43 in the previous year. Similarly the number of reported fraud cases reduced to 419 from 587 attained in 1996 on the other hand the total amount involved in reported case in 1997 increased to N3,590 31 million from N1542.71 million in 1996 though the actual/expected loss stoop at a lower level of N224.54 million relative to N371.08 million in 1996. On the average, only 6.25 percent of the total value of amount involved was lost during the year whereas for the previous year the proportion was 24.07 percent (fraud and forgeries case in commercial banks).

1.    Desperate need for money
2.    Job frustration
3.    Heavy personal indebtedness
4.    Every body does it syndrome (rationalization of  contradictory behaviour)
5.    Enjoy beating the system
6.    Internal control are tax (it is easy).
7.    Low probability of detection
8.    Low probability of prosecution
9.    Family or other induced extravagant means of living.
10.    Socially unacceptable behavioural excesses (extra marital affairs labial and drugs)
11.    Greed
12.     Low loyalty
13.    Possible connection with organized crime
14.    Revenge
15.    Inadequate living practices

The banks have to adopt some control measures to check the high incidences of fraud facing them in their operations the following measures may be of help to the bank in fraud minimization.

a.    Constant inspection: Banks should adopt constant and consistent inspection of banking operation. This should be carried out by qualified and experienced banks inspectors and auditors.
b.    Security Symbol: There should be in built security makes or symbol on bank documents this will make forgeries difficult and assist in fraud detection.

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c.    Enhance Remuneration: The remuneration paid to bank employees should be adequate and commensurate to the nature of the Job which they perform. In order to avoid being tempted into committing frauds, the employees of the bank should be properly paid.

d.    Reassignment of staff: Bank staff should not be allowed to stay too long on a particular seat or in a given location. There should be constant reassignment of staff to that they cannot be too long on a particular seat to cause fraud in the bank

e.     Penalties: There should be severe punishment for a staff involved in fraud. The penalty should have serve consequence so as to deter people from defrauding banks.

f.    Fraud detecting equipment: Sophisticated fraud detecting equipments should be used bys banks the equipments have to be capable of detecting forged papers and ether unqenuine documents ments for defrauding banks.

g.    Electronic Monitoring Equipments: The bank should install close circuit monitoring television set. This equipment is capable of monitoring the activities of people within the banking ball. The presence of the equipment will put fear into the bank staff and possibly help to minimize fraud.

h.    Adequate Supervision of Dormant Account: The banks should have proper supervision and monitoring of the operation of dormant accounts transaction of those account no matter how little must go through the branch management.

i.    Banking Education: Adequate banking education should be organized for customers. These forum should be used to educate customers on bank fraud they should be taught to promptly report any suspicious entries in their account to the bank.

g.    Seminar: The bank should endeavour to organize seminars workshops symposia and lectures on fraud control to their employees regularly. These would help the bank employees detect bank frauds on time.

k.    Cash officers should be sure of the need for cash by cashiers before making the money available receiving and payment of cash should be separated from each other.

l.    Bank staff should be properly screened before being employed satisfactory references must be obtained. The present practice where by names of terminated bank staff are circulated amongst other banks will go a long way to reduce incidence of bank fraud.

m.    All banks should introduce struck disciplinary action which would serve as a deterrent to  other staff whenever malpractice are proved against such staff.

n.    customer should be encouraged to use print pens in writing  the amount and payees name on cheques which makes it difficult to alter them.

—-This article is not complete———–This article is not complete————

This article was extracted from a Project Research Work Topic


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Fraud in the Banking Industry – The Nigerian Perspective

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  1. olayemi says:

    are u going to send a full project to me after making the payment? table of contents, abstract, references and others?

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