Fraud Prevention Detection and Control in Nigeria Banking Industry

Fraud Prevention Detection and Control in Nigeria Banking Industry

ABSTRACT

This work is all about fraud prevention, detection, and control in the banking sector of Nigeria. This study has Habib Nigeria Bank Limited, Enugu as a case study.

To the study, such factors as poor staffing, poor remuneration, and weak internal control among other factors contributed immensely to the incidence of fraud in banks. The study revealed that the most effective way of preventing fraud in banks is through an effective in-built control mechanism. This internal control mechanism is designed in such a way to designate responsibilities so that a staff’s activities are checked by another who is in turn checked by a higher officer. This calls for a strong and independent inspection and audit department in every bank comprising of staff with impeccable integrity.

This study applied necessary data collection techniques such as questionnaires.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Fraud is a `cankerworm’ that has eaten deep into the nation’s fabrics. It is visible in all sectors of the economy. In the financial sector, fraud is an `offshoot’ of financial crimes which covers offenses, which are securities, related and involve the movement, transfer, or use of monetary instruments in circumstances, which render such acts unlawful. The above definition can be extended to include any dishonest, unethical, or unprofessional conduct which results in financial loss to someone or an institution for the benefit of another. Financial fraud includes but is not limited to the following, cheque kiting, loan fraud, advance fee fraud, securities fraud, account opening fraud, insider dealing clearing fraud, computer fraud, telex fraud, and money laundering.

Fraud as stated earlier is not peculiar to the banking industry but cuts across other sectors of the economy. Frauds in banks are not new it is as old as the industry itself. But in recent times, the practice has assumed an alarming proportion. Sometimes, the act is carried out by outsiders while in most cases there is a collaborative effort between outsiders and staff to perpetuate this financial crime.

Against this background, the government in its effort to combat fraud and other financial crimes has set up various monitoring and control commissions such as the independent corrupt practices and other related offenses Commission (ICPC), which is the apex body, saddled with the responsibility of fighting corruption and other related offenses. The ICPC was inaugurated on the 20th of September 2002. The act establishment this commission in section 3 provides for the independence of the commission and gives the chairman authority to rescue order for the control and general administration of the commission and financial crimes commission (EFCC) which was established in 2002. Another is the National Drug Law Enforcement Agency (NDLEA).

HISTORY OF THE CASE STUDY (HABIB NIGERIA BANK LIMITED)

Habib Nigeria Bank Ltd was incorporated as a private limited liability company in November 1982. It was granted a banking license on 7th March 1983 and commenced operation on 16th May of the same year.

The objectives of the bank have been to introduce and maintain a banking style with a difference in Nigeria and develop a sound bank with a branch network in all the states of the federation and the capital territory, Abuja. It also has its objective to provide financial and technical assistance to the public and private sector organizations within the framework of the government of Nigeria’s plan and policies. It also mobilizes deposits by encouraging savings through the introduction of effective banking services and an effective advertising program. The main thrust of the bank’s philosophy is the provision of quality service with emphasis not only on the enhancement of social and moral standards but also on the need to be responsive to the requirement and aspirations of the communities in which they serve. The bank has its banking as values of trust, integrity, and the provision of financial security. This research work will look at the bank’s operational system with the view of determining the frequency of fraud occurrence, fraud detection, prevention, and control measures in the bank.

Habis Nigeria bank Ltd as a case study in this research work does not in any way signify that the bank has fraud infection but this is to help one form an opinion on what may be obtained in other banks but not in any way referring to banks with dubious staff. During this study, it was revealed that Habib Nigeria Bank Ltd has received a series of congratulatory letters from the central bank of Nigeria on its operating system and built a mechanism to checkmate fraud and other related financial crimes.

The board of the bank is presently composed of seven (7) Pakistanis with Mr. L.K. Abiola is the chairman while Mr. Akin Kekere-Ekun is the managing director and chief executive. The bank, which started operations with 3 branches in May 1983, now boasts 59 branches in 35 states and the federal capital territory.

1.2 STATEMENT OF PROBLEMS

For any solution to be preferred a problem must be properly identified. Fraud in the banking sector is not committed by the system but by people in the system. For fraud to be perpetrated, there are working conditions and practices that encourage it. Without stating these problems any effort at curbing fraud will amount to treating the wrong let. Against this background, the following will be pertinent to state here

(i) The remote causes of fraud in the banking sector.

(ii) The frequency of fraud occurring in the banking industry

(iii) The banking practices that encourage fraud.

(iv) Banks’ and government’s efforts aimed at curbing fraud.

1.3 OBJECTIVE OF THE STUDY

This study aims at achieving the following objectives:

(i) To determine the remote causes of fraud in the banking sector.

(ii) To determine the frequency of fraud occurring in the banking industry.

(iii) To determine banking practices that encourage fraud.

(iv) To ascertain banks’ and government’s efforts aimed at curbing fraud.

1.4 SCOPE OF THE STUDY

Given the current travails of the banking sub-sector, the need to plug all areas of wastage, more than ever before, becomes compelling. Thus, fraud which has over the years constituted substantial drawn on the vaults of banks and other financial institutions, needs not only to be detected on time but must also be prevented and controlled. Hence, the importance of this research work, is fraud prevention, detention, and control in Nigeria’s banking industry.

1.5 RESEARCH QUESTIONS

(i) What are the remote causes of fraud in the banking sector?

(ii) What is the frequency of fraud occurring in the banking sector?

(iii) To what extent do banking practices encourage fraud?

(iv) What are the efforts of banks and the government against fraud?

1.6 SIGNIFICANCE OF THE STUDY

This research title – fraud prevention, detection, and control in the Nigerian banking industry is timely and of great importance to the banking sector, the economy, and the nation as a whole. More so now that there are a lot of cases of distress in banks. This distress stems largely from fraudulent activities being perpetrated by bank officials, sometimes, in connivance with outsiders.

Revelations made by this research will help banks, financial institutions, and other fraud-prone institutions curb the menace of fraud. This is because this study will identify the cause of fraud, and as well as proffer solutions to this cankerworm called fraud. The various types of fraud and ways to curb them are also identified in this research work.

This research, therefore, is of great importance to every bank’s management that wants to reduce the incidence of fraud in their system to the bearest minimum and increase the level of public trust.

In a nutshell, this study can be regarded as a blueprint of fraud solutions. Students studying accountancy and other finance-related courses will find this study relevant especially on how to prevent fraud. It is also expected that this study will stimulate the interest of more students to further research this issue thereby widening the basis on which an opinion could be formed on this subject matter.

1.7 DEFINITION OF TERMS

BANKING INSTITUTIONS

Banking institutions are the institutions saddled with the responsibility of rendering financial services. These include any person or corporation that provides the minimum banking services and which is licensed as a bank by the federal government of Nigeria as a banking institution. Those minimum banking services include:

(a) Acceptance of deposits from customers

(b) Making payments locally and outside Nigeria.

(c) Granting loans and advances.

(d) Trading in securities.

(e) Clearing of cheques and similar instruments.

FRAUD

The level of fraud in the country today has assumed an unenviable height. It has eaten deep into the nation’s Fabrics that no sector is spared. It has over time undergone some levels of refinement and sophistication. Fraud can summarily be described as an act carried out by an individual to gain some advantages dishonestly. For an act to constitute fraud, there must be a deliberate intention to deceive and they must be intended to enrich the perpetrator dishonestly.

FINANCIAL CRIMES

The term `financial crimes’ covers offenses that are securities-related and involve the movement, transfer, or use of monetary instruments in circumstances that render such acts unlawful. In the context of the ongoing efforts to sanitize the financial services industry in Nigeria, the above definition has been extended to include any dishonest, unethical, or unprofessional conduct which results in financial loss to someone or an institution for the benefit of another.