Financial/ Bank Fraud And Its Effect On Bank Performance In Nigeria

Fraud is an epidemic dimension that has eaten deep into the banking sector as well as the entire economy. Its devastating 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 was against this backdrop that this study was aimed at providing empirical evidence on the effect of fraud on performance of banks. Data for the analyses were obtained from primary data through questionnaires and secondary data from Nigeria Deposit Insurance Corporation (NDIC) Annual Report. Four hypotheses were formulated to access the impact of looting of fund, social and environmental factors, motivation and government effort on effect of fraud on banks performance in Nigeria. These were tested with simple percentages and chi-square (x2) statistical technique at 5% significance level. Results showed that lack of adequate motivation is not a major cause of fraud in banks, looting of fund by bank managers and directors constitutes the major form of fraud in Nigeria, government effort and its agencies have negatively impacted on combating fraud in Nigeria and environmental or social factors have negative impact on bank fraud. On the basis of findings, it is recommended that government should make their impact to be felt in combating 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 test their morality and integrity before recruitment. Adequate internal control system should also be establish to have check and balances among bank staff. It is envisaged that if all these are put in place, fraud will be reduced to its barest minimum thereby restoring confidence to bank customers.

Appendix 1: Letter to respondents

Appendix 2: Questionnaire to some staff

Appendix 3: Chi square table

 

Table 2.2.4.1: Total amount involved in fraud and forgeries

Table 2.2.4.2: Ten banks with highest fraud cases

Table 2.2.4.3: Categories of banks staff involved in fraud and forgeries

Table 4.1: Analyses of questionnaires issued to respondents

Table 4.3.1: Test of hypothesis 1 with related question

Table 4.3.2: Test of hypothesis 2 with related question

Table 4.3.3: Test of hypothesis 3 with related question

Table 4.3.4: Test of hypothesis 4 with related question

 

Cover page ……………………………………………………………………....i

Title page ……………………………………………………………………….. ii

Approval page …………………………………………………………………. iii

Certification ……………………………………………………………………. iv

Dedication ……………………………………………………………………… v

Acknowledgements ...………………………………………………………….. vi

Abstract ……………………………………………………………………….. vii

List of appendixes …………………………………………………………… viii

List of tables …………………………………………………………………. ix

Table of contents ……………………………………………………………… x

CHAPTER ONE: INTRODUCTION

1.1 :  Background of the study …………………………………………...… 1 

1.2 :  Statement of the problem …………………………………………..… 3 

1.3 : Objectives of the study ………………………………………………... 5 

1.4 : Research Questions ……...…………………………………………...... 5 

1.5 : Research hypotheses ……..……………………………………………. 5 

1.6 : Scope of the study …………………………………………………...... 6 

1.7 : Significance of the study …..………………………………………….. 6 

1.8 : Limitation of the study ………………………………………………... 7

1.9: Definition of terms ……………….……………………………….8

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1: Empirical study …………………………………………………. 9

2.2: Theoretical framework ……………………………..…………… 12

2.2.1: Causes of bank fraud …………………….…………………… 12

2.2.2:  Categories of bank fraud ……………………………………. 15

2.2.3: Types of fraud ……………..…………………………………. 18

2.2.4: Fraud and its effect on Nigerian banks...……………………... 20

2.2.5: Government attempt to prevent bank fraud...……………….. ..25

2.26: Ways to prevent fraud ……………………………………….....27

2.2.7: Fraud resolution ……………..……………………………….. 28

CHAPTER THREE: RESEARCH METHODOLOGY

3.1: Research design ……………………………………………….… 29

3.2: Nature and sources of data ………………………………………. 29

3.3: Population of the study ………………………………………….. 29

3.4: Sample size determination ….……………………………………. 30

3.5: Technique of analyses ……….….….…………………….....…… 31

CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA

4.1 Data presentation ………………………………………….…….. 32

4.2: Data analysis …………………………………………………….. 33

4.3: Test of hypotheses ………………………………………………..33

4.4: Interpretation of result ………………………………………….. 46

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1: Summary of findings ……………………………………………. 48

5.2: Conclusion ………………………………………………………. 49

5.3: Recommendations ………………………………………………. 49

Bibliography ………………………………………………………. 51

Appendix I …………………………………………………….…..  54

Appendix II …………………………………………………………55

Appendix III……………………………………………………….. 59

The significance of the banking sector in any country stems from its role of financial mobilization from surplus to deficit unit, provision of a competent payment system and facilitation of the implementation of monetary policies. In intermediation, banks 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 of the most critical 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 affect the lives 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 scholars Olufidipe (1994) defined fraud as „deceit or trick deliberately practiced in order to gain some advantages dishonestly‟. According to Boniface (1991), fraud is described as „any premeditated act of criminal deceit, trickery or falsification by a person or group of persons with the intention of altering facts in order to obtain undue personal monetary advantage‟. Another scholar Idowu (2009) also sees fraud as a deliberate falsification, camouflage, or exclusion of the truth for the purpose of dishonesty/stage management to the financial damage of an individual or an organization. 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, assets, or other property owned or held by a financial institution, or to obtain 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 person.

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, and gangsters and looting. Bank fraud ranges from account-opening, 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 industry are getting to a level at which many stakeholders in the industry are losing their trust and confidence in the industry. Corroborating the view of Oseni, Idolor (2010), stressed that the spate of fraud in Nigerian banking sector has lately become a source of embarrassment 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 high rate of fraud within the banking industry, calls 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 confidence among the banking public, impede the going concern status of the bank and ultimately lead to bank failure (Adeyemo, 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 assumed an epidemic dimension. It has eaten deep into every aspect of our life to the extent that a three years old child talks about 419, the name give to the newly discovered advanced fee fraud that is hunting our nation.

In July 2004, central bank of Nigeria (CBN) unveiled new banking guidelines designed to consolidate and restructure the industry through mergers and acquisition. Banks and Other Financial Institutions Act (BOFIA) 1991, section 15, was also 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 forgeries in 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 frauds and forgeries involving over symbols ₦ 10 billion compare with 1,193 reported cases of fraud 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 arrested, it might delete our resources because foreign investors might not find it wise to transact business via our banks.