BANK FRAUD AND ITS EFFECT ON BANK PERFORMANCE IN NIGERIA

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PROJECT TOPIC AND MATERIAL ON BANK FRAUD AND ITS EFFECT ON BANK PERFORMANCE IN NIGERIA

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• Name: BANK FRAUD AND ITS EFFECT ON BANK PERFORMANCE IN NIGERIA
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ABSTRACT

Fraud is an epidemic dimension that has eadteenp into the banking sectaosr well as the entire economy. Its deavstating effect manifests itself in the deteriorating balance sheet of banks as well as in economic backwardness. As a result, measures to eradicate fraud in banking sector become a central focus of the government and the monetary authorities. It wasstatghaisinbackdrop that

this study was aimed at providing empirical evidence on the effect of fraud on performance of banks.  Data  for  the  analyses  were  obtadinferom  primary  data  throughquestionnaires  and secondary  data  from  NigeriaDeposit  Insurance  Corpoartion  (NDIC)  Annual  Report.  Four hypotheses were formulated to access the impact of looting of fund, social and environmental factors, motivation andgovernment effort on effect forfaud on banks performance in Nigeria.

These  were  tested  with  simple  pertcaegnes  and  ch-si quare  (x²)  statistical  technique  at  5% significance level. Resuslst howed that lack of adequate motivation is not a major cause of fraud in banks, ol oting of fund by bank managers adnidrectors constitutes the major form of fraud in Nigeria, government  effort  and  its  agencies  haveantievgely  impacted  on  combatinfgraud  in  Nigeria and environmental or social factors have negative impact on bank fraud. On the basis of findings, it is recommended thgaot vernment should make their impact to blet infecombating

fraud by establishing more agencies for combating frauds. Those managers and director  involved in looting of fund should be persecuted to serve as a deterrent to subsequently once. In addition,  bank  staff  should  be  properly  screened  to  ttehsetir  morality and  integrity  before recruitment.  Adequate  internal  control  systemshould  also  be  establish  to  have  check  and balancesamong bank staffI.t is envisaged that if all these are put in place, fraud will be reduced

to its barest minimum therebreystoring confidence to bank customers.

TABLE OF CONTENTS

Cover    « « « « « « « « « « « « « « « « « « « « « « « « « «

Approval page « « « « « « « « « « « « « « « « « « «

Certification « « « « « « « « « « « « « « « « « « «

Dedication « « « « « « « « « « « « « « « « « « « «

Acknowledgement « « « « « « « « « « « « « « « « «

Abstract   «   «   «   «   «   «   «   «   «   «   «   «   «

List of tables  «  «  «  «  «  «  «  «  «  «  «  «  «  «  «

Table of content

CHAPTER ONE: INTRODUCTION

Background of the study« « « « « « « « « « « « « «

Statement of the problem«  «   «   «   «   «   «   «   «   «   «

Objectives of the study « «   «   «   «   «   «   «   «   «   «   «   «

1.4 : Research Questions «  .«..  «   «   «   «   «   «   «   «   «

1.6 : Scope of the study « « « « « « « « « « « « « « «

1.7 : Significance of the study «    « « « « « « « « «

1.8 : Limitation of the study  «   «   «   «   «   «   «   «   «   «

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1: Empirical study  «   «   «   «   «   «   «   «

2.2: Theoretical framework « « « « « « « « «

2.2.1: Causes of bank fraud« « « « « « «

2.2.2: Categories of bank fraud« « «« « « « « «

2.2.3: Types of fraud « « « « «« « « « «

Fraud and its effects  « « « «

Government attempt to prevent bank fraud.. «   «   «  «  

2.2.7: Fraud resolution « « « « «« « « « « « « «

CHAPTER THREE: RESEARCH METHODOLOGY

Research design« « « «

Population of the study « « « « « « « « « « «

Sample size determination« «  «   «   «   «   «

Technique of analysis       .« «.« «.« « « « « «

CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA

4.1 Data presentation«   «   «   «   «   «   «   «   «   «

Test of hypotheses

Interpretation of result « «  «  «  «  «  «  «  «  «  «  «

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1: Summary of findings « « « « « « « « « « « « «

Appendix i

Appendix II    «

Appendix III   «   «   «   «   «   «   «   «   «   «   «   «

CHAPTER ONE

INTRODUCTION

• : BACKGROUND OF THE STUDY

The significance of the banking sector in any country stems from its role of financial mobilization  from  surplus  to  deficit  unitp, rovision  of  a  competent  payment  system  and facilitation  of  the  implementation  of  monetary  policies.  In  intermediatiboann, ks  mobilize savings from the surplus units of the economy and channel these funds to the deficit unit, particularly private business enterprises, for the purposes of expanding their productive capacity.

The banking sector has become one ofmthoest crtiical sectors in the economy with wide effect on the level and direction of economic growth and transformation and on such economic variables as the rate of unemployment and inflation which directly athffeclitves of our people.

Today, the very integrity and survivability of these laudable functions of Nigerian banks have been deteriorated in view of incessant frauds and accounting scandals.

Fraud however has been defined by many scholar s   O   X   I   L   G   L   S   H

trick deliberately pra F   W   L   F H  G         L  Q         R   U   G  H  U         W  R         J   D  L  Q                  V I   U   D  X  G                                            L  V                             G   H   V   F   U   L   E H  G    D  V          µ

a person or group of persons with tinhteention of altering facts in order tobtoain undue personal

P   R   Q   H   W   D U           D  G  Y  D  Q  W  D  J  H  ¶               $   Q   R   W   K H  U                                                  V

camouflage, or exclusion of the truth for the purpose of dishonesty/stage management to the financial damage of an individual or an orgzaantion. 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, asostehtesr, or

property owned  or  held  by  a  financial  institution,  or  to  aoibnt 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 peorns.

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, gaanndgsters and looting. Bank fraud  ranges  from  accou-notpening,  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 industryetatirneggto a level at

which many stakeholders in the industry are losing their trust and confidence in the industry. Corroborating  the  view  of  Oseni,  Idorlo(2010),  stressed  that  the  spate  of  fraud  in  Nigerian banking  sector  has  lately  become  a  source  obfaerrmassment  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 higrhate of fraud within the banking indus,trcyalls 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 confidenacme ong the banking public, impede the going concern status of the bank and ultimately lead to bank fa(Ailudreeyemo,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 assumedepaindemic dimension. It has eaten deep into every aspect of our life to the extent that a three years old child talks aboutth4e19n,ame give to the newly discovered advanced fee fraud that is hunting our nation.

In  July  2004,  central  bank  of  Nigeria  (CB) Nunveiled  new  banking  guidelines  designed  to consolidate  and  restructure  the  industry  throumgehrgers  and  acquisition.  Basnkand  Other Financial Institutions Ac(tBOFIA) 1991, section 15, waaslso 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  ifeosrgienr  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 sfranud forgeries involving over symbols•10

billion compare with 1,193 reprtoed cases offraud 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 taerdr,esit might delete our resources because foreign investors might not find it wise to transascint ebsus via our banks.

1.2 : STATEMENT OF THE PROBLEM

Banks generally have been experiencing fraud since its evolution. This affects the performance

and the profitabiltiy of banks and may possibly ldeato distres.s The inability to identify the

immediateand remote causes of continuous cases of bank frauds in virtually all banks in Nigeria is one of the problems brought to b.are

Fraud is a major challenge to the entire banking industry; no bank is immuitnaentdo in  all facets  of  life  (Olorunsegun,   201)0.  The  banking  public  expects  accountability,  fairness, transparency in their day operation for effective intermediation.

Though there were known cases of fraud in the sector, one major question still remain

unanswered  which  is  what  is  the  nature  and  rdeinffte ways  through  which  fraud  can  be

perpetuated in banks. It is asserted by Adeyemo (2012) that fraud in the bank is possible with corroboration  of  an  insider.  The  banks  aerxepected  to  ensure  that  they  carry  out  their responsibilities with sincerity ofuprpose which is devoid of fraudulent practices. This is relevant

if the banking sector is to gain public trust and goodwill.

Another problem is that the government and its agencies have not put enough effort in the prevention and control of bank fraud Ninigeria; otherwise the level of bank fraud would have reduced  to  a  bearable  level.  Agencies  limkeoney  laundering  Actwhich  helps  to  place surveillance on any account through which such excess cash deposits or withdrawals are made, Nigeria Deposit InsurancCeorporation which is involved in managing bank distress, failed banks and financial malpractices in banks Awcthich was vested with powers to recover the debts of failed banks, dishonored cqhuees Act which affects banks in their collection and  payment  of cheques on behalf of their customers and Bill of Exchange Act which helps to collect  the proceeds of trade bills of exchange and cheques are not putting enough effort in the prevention

and control of bank fraud that is the reason why bank fraud is inncgredaasyi  by day in Nigeria.

However, environmental or social factors pose a problem in the activities of banking industry as they contribute to bank fraud in Nigeria. Environmental factors are those that can be trace to the

immediate and remote environmeonft the bank these factors are manifest in  the  following manne;r the desire to get rich quick slow and complex legal process, poverty and the widening gap between the rich and the pocoor,mpetition among bank staff, the desire to belong to any  social classj,ob insecurity, peer group pressure and societal expectations.

1.3 : OBJECTIVES OF THE STUDY

The general objective of this study is to identify bank fraud and its effect on bank performance in Nigeria but thegeneralobjectives of this study ar;e

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

2. To identify the forms of bank fraud in

3. To examine hte efforts of government and its agencies in the prevention and control of bank fraud in
4. To examine the extentot whichenvironmental or social cfatorscontributed tobank fraud

in Nigeria.

1.4 : RESEARCH QUESTIONS

The following research question guided this study;

1. What are the actual causes of bank fraud in Nigeria?

2. In what way do directors/ managers contribute to bank frauds in Nigeria?

3. What arethe efforts of government and its agencies on bank fraud in Nigeria?

4. What constitutesenvironmental or social factors of bank fraud in Nigeria?

1.5 : RESEARCH HYPOTHESES

The following research hypothesis were formulated and later tested. They include;

H₀: Lack of adequate motivation is not a major cause of fraud in banks.

H₁: Lack of adequate motivation is a major cause of fraud in banks.

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

H₁: Looting of fund by bank manager /directors constitutes the major form of fraud in Nigeria.

H₀: Government effort and its agencies have negatively impacted on combating of fraud in Nigeria

H₁: Government effort and its agencies hapvoesitively impacted on combating of fraud in Nigeria.

H₀; Environmental or social factors does not have a negative impact on bank fraud.

H₁; Environmental or social factors have positive impact on bank fraud.

1.6 : SCOPE OF THE STUDY

This studycenters on fraud in the Nigeriananbking industry with a keeinnterest onfive ( 5 ) insured bankswith datacovering 2002-2011. The fiveinsured banks coveredincludes First Bank of Nigeria Plc, Union Bank ofNigeria Plc, United Bank for Africa PlcD, iamond Bank Plc, Zenith Bank Plc, all in Enugu state, Oparah AvenueraBnch. To achieve the objectives of this  study,  primary  and  secondary  data  weurseed.  One  hundred  and  twenty  five  ()125

questionnaires were administered to the study respondents thapt uwrpeoresively selected from five (5) insured banks in Enugu.

1.7 : SIGNIFICANCE OF THE STUDY

This researchwork will be beneficial to the following groups;

(a)   Banks and Financial Institutions

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(tmhefat,ns

embezzlement, forgeries e.t.c) employed in defrauding banks adnednttoifyi the cause of frauds in banks inNigeria.

(b)   Government

The government 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.

(c)    General Public

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  sucfhrauads which  can  hinder  the smooth operation of the bankiningdustry should be viewed with all seriousness in other not to intercept or destroy the rate of development.

(d)   Academia

It will also be beneficial to people who which to carry out further research in this area, to find this work relevant in their research.

1.8 : LIMITATION OF THE STUDY

Bank fraud and its effectnothe performance of bankiss an extensive topic that may inlveo

commercial banks and community banks. The researcher will like to touch all aspeacntskinofgb

activities, but for lackof time and financial constraints, the researclihmeirt his work to frauds in five (5) insuredbanks.

1.9 : DEFINITION OF TERMS FRAUD

Fraud can be defined asdeaceit or trick deliberately practiced in order to gsaoinme advantages dishonestly.

BANK FRAUD

Bank fraud is defined atshe use of fraudulent means to obtain money, assets, or other property owned  or  held  by  a  financiainl stitution,  or  to  obtain  money  from  depositors  by  fraudulently representing to be a bank or financial institu.tion

NDIC

This is an acronym foNr igeria Deposit Insurance Corporat.ioInt is specially charged with the responsibility of protecting depositorbsy insuring customers deposit to the tune of N200,000.

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