DETECTION AND CONTROL OF FINANCIAL FRAUDS IN NIGERIAN BANKING SYSTEM: PROBLEMS AND SOLUTIONS

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DETECTION AND CONTROL OF FINANCIAL FRAUDS IN NIGERIAN BANKING SYSTEM: PROBLEMS AND SOLUTIONS

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

There has been no single accepted definition of the term “fraud”. Fraud in whatever form is limitless on classification, this is why courts and writers on fraud try to escape away from giving a decision definition, notwithstanding the varied meaning, attached to the concept of financial fraud the author addressed the subject with the following working definitions Oxford and chambers dictionaries define fraud as a criminal deception, act of deceptive, trick, cheating swindling person or thing that deceives. Longman dictionary define fraud as ‘an act if deceitful behaviour for the purposes of gain which may be punishable by law. In the mind of civil court of justice, fraud may be said to cover “all act, omissions and concealment which involve a branch of legal or equitable duty trust or confidence justly reposed and injurious to another or by which an undue influence or available ie taken off.

Bronifagbeni define banking fraud to mean an act or cause if deception deliberately practiced to gain unlawful or unfair advantages such deception directed to the detriments of another. The goes further to define fraud to mean depriving a person dishonestly or something which is his or of something to which he or would or mighty but for perpetration in the fraud be entailed. Having closely studies these approaches to definition to fraud especially from the banking perspective one may correctly see bank financial fraud as a deliberate act by an individual or group within or without the Nigeria banking system to cheat, swindle, deceives or manipulate in other to disposes the banking depressions/shareholders of their funds. Therefore fraud and forgone in banking transactions can be perpetrated through falsification of entire in accounts of customers with a view to take advantage of the excess proceed.

Despite several definitions of frauds, the author believes that the ones so far given are rather appropriate advantages, and inspiring for the purpose in which the research work intends to achieve. This is because they contain the basic elements of fraud which include that: (a) There must be decent or deception directed to the detriment of another or entirety (b) A false representation has been made knowingly or without belief in its truth or recklessly, carelessly, whether it is true or false. (c) Obtain damages for deceit, it must be proved that the defendant intended that the plaintiff should act on it and suffered damages in consequences. The position of banking system in our economy cannot be over emphasized. They act as the conduct pipe through which all the financial transactions pass. However, fraud has proved a serious bottleneck to the proper functioning of the roles of banking system to the Nigeria economy people are beginning to get worries and sooners than later may lose confidence in our banking sector due to mainly the very increasing incidence of fraud in our today’s bank Banks as the store house of the public funds and properties should be on trust not fraud.

1.2 STATEMENT OF THE PROBLEM

The frequent cases of financial fraud in many financial institutions in our country is now taken as the utmost concern to financial experts and micro economists. This has also limited that task of seeking solution to eliminate its occurrences. To some banking experts the issue of fraud in an internal vice in the Nigeria banking system. They argue on this because of good number of frauds occur among our banks without the knowledge of outsider even where the public is aware it does not affect the rate at which customers withdraw or deposit money. These experts are inclined to believe this because the nation is under-banked, the populace are at no option but to use the available banks like especially the foremost and well established banks like Zenith Bank Plc even if there are glaring inefficiencies in the operations incompetence and laziness among most banks staff give birth to fraud.

Fraud has paralyzed the roof, the foundation and creditability of our banking system, just pick up any national daily or from police record and you will be alarmed at the extent and magnitude of bank fraud in Nigeria banking system. Many banks have gone on distressed. Therefore the researcher is arming at finding out if there is any significant effect or solution to financial fraud in the Nigeria banking system which has to offer to these deficiencies aforementioned with special references with Zenith Bank Plc station road, Enugu. In summary, the major problems of this study are as follows

(a) The incessant/consistent casa of financial fraud

(b) Weakness this has attributed to banking industry prior to the introduction of effective control of financial fraud

1.3 OBJECTIVE OF THE STUDY

This research work is generally set towards ascertaining the effects finical fraud have had on Nigeria banking industry since its inception in the Nigeria industry furthermore, the study is.

i) To determine if any loss of bills, the banking have in relationship with the financial fraud in banking and to what extent

ii) To examine the facts contained in the detection and control of financial fraud issued

iii) To research into the reason why people involve in financial fraud

iv) To diagnose the banking procedures with a view to fishing out loopholes and suggested way of plugging them.

v) To examine the various management and government controlling devices geared towards alimentation or checking financial fraud in our banking system

vi) To recommend solutions that may help in checking financial fraud in our banking system.

1.4 RESEARCH QUESTIONS

The researcher intend to give close attention to the following questions:

1. What is the level of compliance with physical control measures in the Nigerian banking system?

2. What is the importance of internal audit in detection and prevention of errors and frauds in the Nigerian banking system?

3. To what level is separation of duties complied with in financial institutions in Rivers State metropolis?

4. To what level do other banks comply with the Central Bank of Nigeria’s prudential regulations in the Nigerian banking sector?

1.5 RESEARCH HYPOTHESIS

To fulfill the above outline purpose, the research declares the following prepositions

H0: Most financial frauds have not succeeded because of the complexity of banking activities

H1: Most financial frauds have succeeded because of the complexity of banking activities

H0: Auditing and investigations are not indispensable weapons in the efficient management of the banking industry

H2: Auditing and investigations are indispensable weapons in the efficient management of the banking system.

1.6 SIGNIFICANCE OF THE STUDY

It is a general consensus that the financial system of any economy is the function around which the economy revolves. Within this preview, banks strategically occupy an indispensable position in the economy. This is as a result of their primary function of servicing as channel or intermediary between the surplus economic unit and deficit economic unit, hence, the efficient functioning of the economy. In carrying out this study, the researcher intends to highlight the importance and benefit of cost effectively applying appropriate and correct fraud and prevention and detection measures. This will serve as a benchmark particularly to the distressed banks whose unfortunate position are particularly attributable to fraud and other malpractices. The result of the knowledge of the cost – benefit analysis will definitely be of importance to the policy makers in that it will help them in assessing the effectiveness and efficiency of the existing statutory laws and policies, and highlight the areas that need further efforts. The study also aim at treating how a well-designed, carefully installed and a resolutely implemented internal control system will aid in checking the incidence of fraud. This, it is strongly believed will be importance not only to the regulatory and supervisory authorities and the commercial banks management but the banking industry as a whole in their various task of putting in place sound banking system for the country. The study will at its end to be of importance to the general public whose confidence and trust have been vehemently shaken as a result of the alarming magnitude of fraudulent activities, failure and distress syndrome in our banking system. It will make them to be aware of unrelenting concerted efforts that has been made and being made by the Government and the regulatory authorities to bring to an end this cankerworm called fraud. Furthermore, the study is designed for all those who may be interested in carrying out further study on internal control system as it relates to fraud prevention in commercial in Nigeria. Finally, it enable the operators themselves to know how they have failed in their tasks and operations which they have set for themselves in meeting the financial needs of Nigerians.

1.7 SCOPE AND LIMITATION OF THE STUDY

The study covered the commercial and merchant banks operating in Nigeria. However, the study covers the commercial banking segment of the banking industry in Rivers State metropolis with special reference to First Bank of Nigeria PLC, Union Bank of Nigeria PLC, Wema Bank PLC, Afribank Nigeria PLC, United Bank for Africa PLC, Orient Bank of Nigeria PLC, Eko International Bank PLC, Eco bank Nigeria PLC, Guaranty Trust Bank PLC and FSB International Bank PLC. Based in the empirical finding, appropriate recommendation will be made about the reasonable conclusion that can be validly made on how best to improve the performance of the Nigerian commercial banking system. In the cause of the study, the researcher encounters some limitations which limited the scope of the study;

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

Inadequate Materials: Scarcity of material is also another hindrance. The researcher finds it difficult to long hands in several required material which could contribute immensely to the success of this research work.

Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

1.8 DEFINITION OF TERMS

Detection: In general, detection is the extraction of particular information from a larger stream of information without specific cooperation from or synchronization with the sender.

Fraud: In law, fraud is delibrate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud itself can be a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compensation), a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities) or it may cause no loss of money, property or legal right but still be an element of another civil or criminal wrong.

Control: Control is the forces that guides activities towards some predetermined goal. It is concerned with the guidance of the internal operations of the business to produce the most satisfactory projects at the lowest cost.

Malpractices: In banks, they are omissions of any functionary of banks which is contrary to the promotion of safe and sound banking practice, or which is in flagrant disregard to the laws, rules and regulation or guidelines made for the promotion of safe and sound banking practices, and which result in financial loss to the bank. Fraud and fraudulent conduct, it should be understood are also malpractices.

Errors and Irregularities: Errors are unintentional actions, example, errors of judgment, etc., while irregularities are intentional errors; and irregularities that result in an immediate loss of asset is referred to as defalcation.

Banking sector: The banking sector is the section of the economy devoted to the holding of financial assets for others, investing those financial assets as leverage to create more wealth, and the regulation of those activities by government agencies.

1.9 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study its based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding. Chapter five gives summary, conclusion and also recommendations made of the study.

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