OVERVIEW AND IMPACT OF FRAUDS IN THE BANKING INDUSTRY IN NIGERIA (A CASE STUDY OF FIRST BANK OF NIGERIA PLC)
Every economy whether simple or complex, developed or developing has a system for mobilizing and channeling its financial resources for further development. Banking has been one of the world’s most persistent concern in this regard because of its potent force in shaping the economy.
Appraisal Of Fraud Control Techniques In Nigeria Commercial Banks
Accounting Project Topics for Nigeria Universities
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For centuries, banking has become a vital engine of growth for the world economy. That is to say, banking is enable many enterprising individuals, firms, government, organizations and communities in all part of the globe to address economic challenges with great efficiency and imagination. Odeyemi (2001:45) observed that banking system has a building cord with economic development because of its statutory and unique role of financial intermediation. It therefore follows that when the banking system is distressed, the economy system is distressed the economy is bond to be directly affected and adversary too.
In Nigeria the banking system has witnessed a chain of distressed banks in 1980s and 1990s with multiplier effects on the economy. Various and varied factors, as cited by Ovuakporie (1994:23) were the causes of bank fail was ranging from unstable economic environment to lack of technically skilled personnel, poor management, over-trading and inadequate capitalization have also been cited. However, the conventional opinion is that, by far, the most important factor is fraud in banks in its various forms. Fraud as has remained intractable in Nigerian banks and economic agencies robbing the economy of opportunities for foreign direct investment and even local investment.
In this chapter however, the researcher wants to give a thorough examination of overview and impact of fraud in the banking industry in Nigeria.
2.1 CONCEPT OF FRAUD
Chember 20th century dictionary defines fraud as deceit, Onkay sharp practice or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage. Here the dictionary sees traced as a foul means of gaining undue and untamed advantage. In legal terms as defined as the act of depriving a person dishonesty of something which is or of something to which he is or would or might be enlisted but for the perpetration of fraud. Legally speaking, therefore, fraud is seen as dispossessing one falsely of something to which one is legally and mighty entitled
(Adewumi, etal) in their definition, they agreed that fraud is an action, which involve the use of deceit and tricks to alter the fruit so as to deprive a person of something, which is his or something to which he might be entitled.
Redzinowics and Wolf gang (1977) classified fraud together with white collar crime, and defined them as illegal all characterized by audit, deceit and concealment of evidence or threats the roof.
The above definition who’s with compelling understanding that fraud does not just occur. It has to be rolled, properly planned and carefully executed hence is incorporates forgery, outright stealing, falsification, misappropriation, conversion, misrepresentation and all forms of manipulations.
Fraud is a global phenomenon and not unique to the banking industry its rate on the banking industry is on the alarming side partly because banks deal in many and partly because the ultimate ambition of fraudsters is to acquire money to make other ends meets.
2.2 SOURCE OF FRAUD
Basically there are two sources of bank fraud. They are:
- Internal source
- External source
2.2.1 INTERNAL SOURCE
Experience has shown that some of the fraud that are successfully carried out in banks are planned and executed by insiders or employees. Ocadele (1994:16) observed that nothing is more disastrous to the failure of an organisation than the negative attitude and approach to work of its employees. This explains that employee can create and uphold corpholes as net work that can ruin the success of a bank and bring about its failure. As Akinbola (1999:7) noted that amid pessimistic conclusion over the inability of some of the banks to revive their directors were owing tidy ruins of moving that were never properly recorded.
2.2.2 EXTERNAL SOURCE
Some fraudsters come to open account with bank and transact other business with fake identities and particulars. Gradually they will monitor the weakness of the bank and capitalize on it to defraud such banks.
Furthermore, some established borrowers are unveiling to repay even when they are known to have the capacity and capability to refuge under the debts. Such borrowers seek refuge under the inadequate legal frame work and cumbersome loan recovery processes which make it difficult for the lending bank to fore-close collaterals. Further still, Mybodile (1998:28) observed that some borrowers willfully default on the ruing notion that the bank loans are part of their share of the “National cake”. He further maintains that there are some borrowers who through convinced with some banks’ staff takes bank loans with no intention to repay such loans.
Therefore external fraud is perpetuated by non-employees with or without the assistance of staff.
2.3 CAUSE OF FRAUD
The causes of fraud are usually grouped into two classes, viz the intentional factors and environmental/societal factors.
Institutional factors are those factors traceable to the internal environment of the bank while environmental/societal factors are those which results from the influence of the environment/society of the banking industry.
2.3.1 INSTITUTIONAL CAUSE OF FRAUD
Various authors and professional in the industry seems to be unanimous in their identification of institutional cause of fraud. These are:
(i) VOLUME OF WORK
The amount of work done by official could be so heavy that fraud could easily pass undetected by such officials. Theories of finage benefits by workers tend to limit the number of workers in an establishment. This lead to one person doing a job meant for three persons. In this case it will be very difficult to detect the trick of fraudulent officials.
(iii) STAFF INFIDELITY
Staff infidelity is the highest liability of a bank, or any business organisation. Obi (1997:43) states that infidelity starts with borrowing a few naira from cashier’s still or the strong room which are returned and, overtime the sum involved increases which also increase the unwillingness and inability to repay. Other staff infidelity such as suppression of cash lodgment, misused of various suspense account, forgeries of customers signature to transfer fund from other account to collaborator’s account granting of loans to fictitious borrowers, diversion of banks funds, outright thrift of cash, suppression of cheques, and foreign exchange malpractices, all cause frauds.
(iv) INADEQUATE JOB ROTATION
If duties are not regularly routed, some staff may stay too long on a particular job where he could commit and cover up frauds successfully for a long time Ovukporie (1994:32) document that infrequent rotation of duties or lack of segregation of duties with the result that a single staff inebriates and completes all stages of a transaction from start to finish induces frauds.
(v) INADEQUATE TRAINING AND RETAINING
Lack of adequate training on both the technical and theoretical aspect of the job leads to poor performance, which breeds frauds. Failure by both management and staff to undergo on the job training and even relevant outside course also lead to unsatisfactory performance which induce frauds.
(vi) POOR BOOK KEEPING
Inability of banks to keep and maintain proper books of account and failure to reconcile and balance the various account on daily, weekly or monthly basis as appropriate give room to commit at the least chance.
2.3.2 ENVIRONMENT/SOCIETAL CAUSE
This has been identified as follows:
(i) SLOW AND TORTUOUS LEGAL PROCESS
Delay in prosecution of fraud cases have a way of frustrating party can abandon the case midway, leading to miscarriage of justice
(ii) FEAR OF NEGATIVE PUBLICITY
Many banking industry’s failed to report fraud cases to the authorities, they believe that doing so will give unnecessary negative publicity to their institution. This attitude encourages individuals with inordinate ambition to defraud in banks. They reason very correctly that the affected institution may not prosecute.
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