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FRAUD IN THE NIGERIAN BANKING SYSTEMS, PROBLEMS AND PROSPECTS (A CASE STUDY OF FIRST BANK OF NIGERIA PLC, AND OCEANIC BANK PLC, ABAKALIKI BRANCH OFFICES)

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ABSTRACT

This project, “fraud in the Nigeria Banking Systems problem and prospect a
case study of First Banking of Nigeria plc Abakaliki and Oceanic Bank Plc
Abakaliki branches”, was carried out to examine the various types of fraud as
well as the causes and sources. It was also meant to explore significant effects
of fraud on banks. Finally, the study was equally embarked upon to proffer
possible remedies, detection measures, prevention and control of the subject
matter in the Nigeria Banking system. Data was collected through the
questionnaire (Primary) and interviews as secondary data thus serving the
inductive research method. Statistical analysis techniques such as the chisquare
distribution test- analysis techniques and percentages were adopted to
analyze the data collected after which several findings were made, which
included: the desire to get rich quick accounts greatly for persistent bank fraud
and that the internal control system in the Nigerian banks is weak and
ineffective .After which it was concluded that, the money laundering
(prohibition) Act is the best strategy to combating fraud in the banking
industry.

TABLE OF CONTENTS

Title page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract v
List of Tables/figures ix
CHAPTER ONE
1.1 Background of the Study 1
1.2 Statement of the Problem 7
1.3 Objective of Study 8
1.4 Research Questions 9
1.5 Research Hypothesis 9
1.6 Significance of the Study 10
1.7 Scope of the Study 11
1.8 Limitations of the Study 12
1.9 Definitions of Terms 12
References
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 Fraud Defined 18
2.2 Banking Concepts Defined 20
2.2.1 The Bank 21
2.2.2 The Banker 22
2.2.3 The Bank Customer 23
2.3 Origin of Banking in Nigeria 25
2.4 Types of Fraud 26
2.5 Models and/Or Theories Relevant To the Research
Question and Hypothesis 42
2.5.1 Cause of Fraud in Banks 45
2.6 Effects of Bank Fraud 45
2.7 Fraud Detection, Prevention and Control 49
2.7.1 Fraud Detection 49
2.7.2 Fraud Prevention and Control 50
References
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction 59
3.1 Research Design 59
3.2 Sources of Data 60
3.2.1 Primary Data 60
3.2.2 Secondary Data 60
3.3 Method of Data Collection 61
3.3.1 Administration of the Questionnaire 61
3.3.2 Interviews and Observation 62
3.4 Population or Study 63
3.5 Sample selection Procedure 63
3.6 Method of Data Analysis 65
References
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.0 Introduction 68
4.1 Data Presentation 70
4.2 Data Analysis and Test of Hypothesis
-Testing Hypothesis One Using Chi-Square Test 76
4.3 Testing of Hypothesis Two
-Test of hypothesis two Using Chi –Square (X2) Test 84
4.4 Test of Hypothesis Three
– Testing of Hypothesis Three Using Chi-Square Test. 91
CHAPTER FIVE
DISCUSSION AND SUMMARY OF FINDINGS CONCLUSION AND
RECOMMENDATION
5.0 Introduction 98
5.1 Summary of Findings 98
5.2.1 Conclusions 101
5.2.2 Recommendations 103
5.2.3 Suggestion for Further Studies 104
Bibliography
Appendix 1: QUESTIONNAIRE
Appendix II: Further analysis of Hypotheses Two and Three using
correlation and Regression analysis techniques
Appendix III: Summary of Bank Fraud, 2002-2006.

CHAPTER ONE

1.1 BACKGROUND OF THE STUDY
The entire world has become increasingly aware of the destructive
effect of a lack of accountability and transparency in both public and
private life. This awareness is so pervasive throughout the world that
governments, business organizations and non- governmental
organizations alike are involved in crusades to promote accountability
and transparency and prevent corrupt practices in all its ramifications.
These crusades have gathered so much steam that international award
for the “Most corrupt” and least corrupt country” in the world now exist.
It is very unfortunate, and a national embarrassment that our father
land which we hope to give to our children as a legacy has repeatedly
won the former rather than the later price.
The fraudulence for which our nation was given a price is not located in
the sky over our land; it is the aggregation and multiplication of little
acts of fraudulence in our interactions with one another (Ezeogu
2007:10).
The dark days of tyranny, military rule and social enslavement
were thought to be the period in which corruption festered in Nigeria
and fraud became common place, but have you ever thought of the role
some fraud stars played in the inability of some commercial banks to
meet their obligations to its customers, owners, stake holder and the
economy?
Has it ever occurred to you to search out how a sizable proportion
of financial institutions had liabilities exceeding the market value of their
asset, which may lead to ruins and other portfolio shifts and eventually,
collapse of the financial system?
Society has long adopted to plunder the noble Nigerian identity
and from military to civilian regimes, pubic office holders had followed
strictly the unwritten constitution to live up to societal expectations.
Values were waded off in exchange for graft and pecuniary benefits,
millions were defrauded of their rights to good education, basic health,
good roads and electricity, housing has become the preserve of the rich
and professionals have lost chunk of their respectability.
The entire world has become increasingly aware of the destructive
effect of a lack of accountability and transparency in both public and
private life. This awareness is so pervasive throughout the world that
governments, business organizations alike are involved in crusades to
promote accountability and transparency and prevent corrupt practices
in all its ramifications.
Fraud and errors are occurrences and like winds, they blow no
good to any firm, industry, association, business organization and
government. Instead they bring regrets, reduced patronage, losses,
distress and failure to such business and organizations as mentioned
above.
It is not also interesting to know that like the ‘canker worm’, they
have eaten deep into the fabrics of the Nigerian financial institutions
especially the banks.
It is not uncommon to day to hear of fraudulent acts like
uninsured deposits, theft of identity, forged or fraudulent documents,
wire fraud, cover of losses by rogue traders, demand draft fraud, and
payment card fraud, cheque kitting, management fraud, Automated teller
machine fraud etcetera in our banks.
Ojaide (2000:18) posits, “Frauds are acts of dishonesty, deceit,
falsifications and manipulations perpetuated to gain undue monetary
and non- monetary benefits”. He further states that accounting, fraud
and fraudulent practices are illegal acts involving misappropriation of
assets (cash, stocks, book debts, fixed assets) manipulation and
falsification of accounting books and records etcetera. In his opinion, the
get rich quick attitude of many Nigerians, greed, poverty and the falling
standard of living are some of the reasons for the increase in the rate of
fraud and fraudulent practices in Nigeria.
Although, frauds, errors and forgeries in banks are global phenomena,
their growth Nigeria have been astounding. Bank frauds and errors in
general inflict untold hardship on bank owners, staff, customers and
their family members, as most bank failures are always associated with
larger scale frauds.
Frauds and errors and their effects on banks in Nigeria today
created room for doubt on the reliability of financial record and reports
kept by management except perhaps on the very small scale business.
The financial report user is not in a position to process and produce
financial accounting information personally, nor has he the day to day
knowledge of company affairs with which he can use as a base for his
judgment.
Modern day banking in Nigeria can be traced to the period 1892
when the first commercial bank- African Banking corporation- was
established. The bank was the first to open its branch in lagos. The
founder was mess’s Elder Dempster and Co; a shipping firm based in
Liverpool.
On account of difficulties experienced in the area of management, the
bank decided to transfer its interest to Elder Dempster and Co. in 1893.
In response to the changes through management restructuring, the bank
metamorphosed to form a new bank known as the British Bank of West
Africa (BBWA) in 1894, with an initial capital of £10,000. Okoro S. A
(2001:17) affirms that: “The Bank of British West Africa was the first
surviving bank in Nigeria and registered in London a limited liability
company in March 1894 with first Lagos branch being opened the same
year.
Following the establishment of this Lagos Branch, other branches
sprang up in other countries of West Africa like Ghana, free town to
mention but a few. The BBWA later opened its second Nigerian branch in
old calabar in 1900 that is, six years later. During this period of
dynamism, there was complete absence of legislations governing the
banking operations in Nigeria. This culminated in the banking distress
experienced in the 1930s. At least about 21 banks failure were recorded
between 1930 and 1952. In reaction to this ugly development that was
ravaging the banking, the then colonial government set up a commission
of enquiry under sir, patron to investigate the cause and proffer
remedies/solutions. Consequent upon their report, the first banking
legislation was passed in 1952. At this time foreign dominance of the
industrial sector was intense even till after independence. This made the
government to launch the indigenization policy in 1972 which conferred
on the Nigerian Government 40% equity share in all companies
registered in Nigeria. As a result of this enterprise promotion decree (i.e.
indigenization decree), the federal government acquired huge equity
share in the BBWA. Similarly following the decree demand, the BBWA
changed its name to First Bank of Nigeria limited in 1973.
Oceanic Bank Plc is one Nigerians foremost financial services
institution. The Bank was incorporated on March 26 1990 under the
Companies and Allied Matters Act (CAMA) 1990 of Nigeria as a private
limited liability company and was granted a commercial banking license
on April 10 1990. It commenced business on June 12, 1990.
Fourteen years later, on June 4 2004, oceanic Bank converted to a
public liability company. Its shares were listed on the Nigeria’s stock
exchange on June 25, 2004. Over the years, Oceanic Bank has built its
success on excellent service, delivered in a friendly environment through
professional staff, leveraging on world class technology.
Today oceanic Bank services customers spread across tiers of
Government, corporate organizations small and medium enterprises and
individuals. The Bank’s commitment to value creation for all its
stakeholders has earned it a solid reputation as a responsible corporate
citizen and employer of choice.
Recently (in 2010), the Central Bank of Nigeria rescued some nine banks
referred to as “troubled banks” who had been hit by bank and security
fraud to the tune of N620 billion ($ 4.1 billion).
Commercial banks occupy an indispensable position in the
Nigerian Economy. They are the pivot upon which other business firms
and activities revolve and a “circuit Pipe’’ through which all financial
transaction pass. Given the current travails of banking sub- sector the
need to plug all areas of wastages, more than ever before, becomes
compelling.
No where is fraud more serious than in banking, it is the biggest
single cause of bank failure (Nwankwo 1991: 162).
‘‘One of the best ways of combating fraud is to mount an aggressive
enlightenment campaign on the dangers posed by fraud to the economy
and the banking industry, in particular”.
This research work is therefore done/carried out to give an indepth
and unique evaluation of the current state of fraudulent practices
in the commercial banks in Nigeria with special reference to First Bank
plc and Oceanic Bank plc, Abakaliki Branch offices. Hence, in this
project work, the researchers’ attempt is geared towards drawing reader’s
attention to the menace in the industry with a view to assisting
bankers/customers in tackling the dreaded monster in their day to day
transactions.
1.2 STATEMENT OF PROBLEM
The threat posed by the existence of fraud and errors are of great
concern to shareholders, bank customers, the pubic and private
investors, creditors, government agencies and the entire citizenry.
The inability of a bank to meet its obligations to its customers,
owners, stalk holders and the economy occasioned by felt weakness in its
operations which has rendered it either illiquid or insolvent have been
ascribed by many to fraud.
Some argue that the rate of financial impropriety in the Nigerian
financial system is so alarming and is evidenced or caused by poor, weak
and inefficient accounting system. Others say that so many banks are
inadequately computerized and that this has prevented the management
from detecting fraud early enough.
More so, as the ultimate motive of most business are to maximize
profit, but financial embezzlement, capital flight, and other fraudulent
practices result in low profit which in turn could lead to bank distresses.
Equally, non compliance to with the existing laws and legislations
like Banks and Other Financial Institutions Decree(BOFID), money
laundering(prohibition) Act, to mention but a few makes crime detection
cumbersome for the Nigerian commercial Banks. It is on these
aforementioned problems that this research study is built. The
researcher will delve deeply into these matters to enable him establish a
link between fraud and commercial bank performance in Nigeria.
1.3 OBJECTIVE OF STUDY
The study will investigate and identify the root causes and the
effects of fraud on banks operation with a focus on the oceanic Bank Plc
and first Bank of Nigeria Plc Abakaliki Branches. The following objectives
will guide this research.
1. To identify the causes of fraud in the Nigerian banking system.
2. To examine the concept, ‘fraud’, bringing out its various types.
3. To find out the reasons people indulge in fraudulent
practices in Banks and other financial institutions.
4. To determine the dangers or consequences of bank fraud.
5. To identify the existing laws relating to banking and the legal
process for prosecuting fraudsters in banks
1.4 RESEARCH QUESTIONS
The following research questions, which the study will attempt to
answer, have been asked:
What are the causes of fraud in our banks?
To what extent has the management been able to detect fraud and
fraudsters?
Why do people indulge in bank fraud?
What are the dangers of fraudulent acts in banks?
Are there laws and legislation put in place by the government on bank
fraud?
1.5 RESEARCH HYPOTHESIS
In carrying out this research, the following hypotheses have been
formulated.
HYPOTHESIS 1
Ho: The desire to get rich quick does not account for persistent bank
fraud.
H1: the desire to get rich quick accounts for persistent bank fraud
HYPOTHESIS 2
Ho: Anti-money laundering law is not the best strategy to combating
fraud in the banking industry.
H1: Anti-money laundering law is the best strategy to combating fraud
in the banking industry.
HYPOTHESIS 3
Ho: The internal control system in the Nigerian banks is not weak and
in effective
H1: The internal control system in the Nigerian banks is weak and in
effective
1.6 SIGNIFICACNE OF THE STUDY
Everyone needs information so as to be empowered. These include,
the financial system participants, owners of banks and other institutions
and the general public. At the completion of this research, which is
carried out, as a partial fulfillment of the award of Master of Business
Administration (MBA) degree in accountancy, the study is significant in
the following ways and to the following persons as enumerated below.
It is to enable the student/researcher, bank customers and staff
including management to have a thorough idea of fraud.
To empower private and public investors of commercial banks, other
banks and the financial institution in general.
To help students and other researchers get information on their study for
the award of various degrees.
To increase the volume of literature in the various library for library
users.
To help the banks solve of their fraud related problem, if they will have
time to read the recommendations made in this study.
To help the participants and operators- the Central Bank, commercial
Banks, Securities and Exchange Commission (SEC), the Stock Exchange
etcetera access their performance and the efficiency of their banks and
then develop polices that will benefit the generality of the people.
To increase the reliance of the share holders on the best strategy of
combating fraud, that would be recommended in this research.
To stare up research students into carrying out further research studies
on areas not covered by the study.
1.7 SCOPE OF THE STUDY
The study concentrates on Banks as part of the financial
institutions and more specifically, on banks within the Ebonyi state
capital Abakaliki from the period of inception till date (2010/2011); the
banks being first bank of Nigeria plc.
-Oceanic Bank plc
The choices were made, from a sample of fourteen Banks within the state
capital. They are, First Bank of Nigeria Plc, standard Trust Bank Plc,
Union Bank Plc, Hallmark Bank plc, Diamond Bank Plc, platinum Habib
Bank, Plc, Guarantee Trust Bank plc, Zenith Bank plc, Afex Bank Plc,
Guidance express bank plc, oceanic Bank plc, intercontinental Bank Plc,
First inland Bank plc.
1.8 LIMITATIONS OF THE STUDY
The limitations of this research includes, the reluctances of the
staff of the banks met to release the information needed for this study
which was partly due to their busy schedules and the quest to protect
their good will.
Also, the research is limited to the publications of institutions like the
CBN, ICAN, the Banks involved, and the Acts in use, text books, and
Browsed materials from the internet and of course my lecture notes.
Equally, another limitation is the lack of sufficient fund (money),
which relatively affected the mobility of the researcher, the frequency of
interviews discussions, the acquisition of the materials used and the
general delay in the time used to carry out this study.
More so, since the research was carried out within the academic
session, the availability of time was another limitation to this study. This
was made much complex by the tight academic calendar and schedule of
the researcher, who had to also, meet up with his numerous courses
within the same session.
1.9 DEFINITIONS OF TERMS
The following terms as operational in this study are hereby defined.
(I) COMMERCIAL BANKS: They are banks that function to accept
deposit from their customers; provide credit facilities like overdrafts loan
and other advances, cheque transactions, provide agency services,
foreign exchange transactions, investment and portfolio management,
consultancy, save-keeping of assets and other services.
(ii) INDIGENOUS BANKS: These are banks owned and controlled by
either the government or the private citizen’s or both.
(iii) NEW GENERATION BANKS: These are banks established in the
after math of Nigerian independence following the government
deregulation and liberalization of the financial sector in 1986.
(iv) BANK CUSTOMERS: In this study, bank customers refer to any
one who either keeps or maintains an account with the bank or
has any other thing to do with the bank that makes him/her stay
within the bank premises during hours of operation.
(v) BANK DISTRESS: This is the inability of a bank to meet its
obligations to its customers, owners, stalk holders and the
economy, occasioned by felt weakness in its operation which has
rendered it either illiquid or insolvent.
(vi) Money laundering: Simply defined; money laundering implies
hiding, moving and investing the proceeds of criminal
conduct/activities, in series of multiple transactions used to
deceive government authorities as to the origin, existence and
application of illicit /illegal sources of income and the eventual
processing of such income to give it a tog of legitimacy
(vii) EXPATRIATE BANK: This is banks owned and controlled by
foreign investors with profit maximization as their major objectives.
(viii) BANK LEGISLATIONS: these are rules, customs, conventions or
regulations of the bank for observance by its members.
(ix) FINANCIAL SYSTEM: A financial system is a composition of
various institutions, markets, instruments and operators,
collectives segregated into, primary system participants,
financial intermediaries, financial markets, financial
instruments and financial system regulators; that interact
within an economy to provide financial services.
INTERNAL CONTROL
Control is not only internal check and internal audit but the whole
system of controls, financial and otherwise, established by the
management in order to carry on the business of the bank in an orderly
manner, safeguard its assets and secure as far as possible the accuracy
and reliability of its records.
BANK TELLER
Bank Teller is an employee of the banks studied who deal directly
with most customers. In some places, this employee is known as cashier.
REFERENCES
Aguolu, O. (2008), Fundamentals of Auditing, Enugu: Institute for
Development Studies, UNEC P 430.
Chukwu, U. C. (2004), “Auditing principles and practice, Abakaliki; new
concept publishing. PP 16-17.
Central Bank of Nigeria (2007), “A case study of distressed Banks in
Nigeria’’, Abuja: government Press PP. 5-6.
Ezeogu, B. O. (2007), “Accountability and transparency, fraud and fraud
control”, a paper presented at Ebonyi Civil Service Seminar 8,; PP
1-3.
Iyiogwe, S. O. (2002) ,Research methodology, Abakaliki; Willy Rose and
Applessed publishing CO. pp 108-111.
Nwankwo, G. O. (1991), Bank Management: principles and practice,
Lagos: Mouse Publishing (UK) Limited. P162.
Ojaide, F. (2000), “Fraud Detection and prevention- the case of pension
Accounts’ ICAN Vol. 1. P.18.
Onwumere, J. U. J. (2009), Business and economic Research Methods,
Enugu: Vougasen limited PP 25-31.
Perry, F. E. (1983) Dictionary of Bank plymon, London: Mac Donald and
Evans.
The Institute of Chartered Accountants of Nigeria (2009) Audit and
Assurance, Lagos: VI Publishers P 358.

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