FRAUDULENT PRACTICES IN THE BANKING INDUSTRY

FRAUDULENT PRACTICES IN THE BANKING INDUSTRY:  CAUSES AND POSSIBLE REMEDIES

ABSTRACT

There are so many difficulties which this research work is confronted with.  Bank officers were so reluctant to give out helpful information of this project.  And there is also the cost of research and limited time, for acquisition, analysis and proper interpretation of data.

Effort is made by the researcher to personally visit all the places where the above secondary data and primary data were located.

Personal effort was also employed in tracing out relevant information needed to the project.

After due analysis of the available data, the researcher discovered the statistical data of members of staff involved in frauds and forgeries, returns of commercial and merchant banks on frauds and forgeries and so on.

Experience has shown that even in the most regulated home, accident can still happen.

Bank staff should be properly screened before being employed, and adequate banking education should be organized for bank customers.

TABLE OF CONTENT

Title page                                                                                          ii

Approval page                                                                                  iii

Dedication                                                                                         iv

Acknowledgement                                                                                      v

Abstract                                                                                            vi

Table of content                                                                                vii

CHAPTER ONE

1.0            Introduction To Back Fraud                                                    1

1.1     Background of the Study                                                                  1

1.2            Statement of the Problem                                                                 3

1.3            Purpose/Objective of the Study                                                        5

1.4            Research Questions                                                                 5

1.5            Research Hypothesis                                                               5

1.6            Significance of the Study                                                                  6

1.7            Scope, Limitations and Delimitations                                               7

1.8            Definitions of Terms                                                               8

Reference                                                                                 9

CHAPTER TWO

2.0            Review Of Related Literature                                                  10

2.1     What is Fraud?                                                                        11

2.2            Causes of Fraudulent Practices                                                         12

2.3            Methods Through which perpetuators

use cheques to defraud banks.                                                 17

2.4            Computer Frauds                                                                    18

2.5            The Role of the Branch Manger on Fraud                               20

2.6            Types of Fraud                                                                        21

2.7            Advance Fee Fraud (“419”)                                                     24

2.8            Effects of Fraudulent Practices in Banks                                 26

2.9            Reasons for Committing Fraud                                                         28

2.10       Techniques of Fraud Control in Banks                                             29

Reference                                                                                 33

CHAPTER THREE

3.0            Research Design And Methodology                                        35

3.1     Research Design                                                                      35

3.2            Area of Study                                                                          35

3.3            Population                                                                               36

3.4            Sample and Sampling Techniques                                           36

3.5            Instruments of Data Collection                                                         38

3.6            Methods of data presentation                                                  39

3.7            Methods of data analysis                                                                  39

3.8            References                                                                               41

CHAPTER FOUR

4.0            Data Presentation And Analysis                                                       42

4.1     Test for Research Question                                                     42

4.2            Test of Hypothesis                                                                            47

References                                                                               56

CHAPTER FIVE        

5.0            Findings, Recommendations And Conclusion                         57

5.1     Findings                                                                                  57

5.2            Conclusion                                                                              60

5.3            Recommendations                                                                   61

Bibliography                                                                           64
LIST OF TABLES

2.i      Members of staff involved in frauds and

forgeries 1989 – 1993

2.ii     Members of staff involved in frauds and

forgeries 1994 – 1998

2.iii    Members of staff involved in frauds and

forgeries 1999 – 2002

2.iv    Amount involved by types of fraud 1992 – 1995

2.v     Ten banks with highest number of report fraud

cases 1989 – 1998

2.vi    Ten banks with highest number of reported

fraud cases 1999 – 2002

2.vii   Returns of Merchant banks on frauds and

forgeries 1989 – 2000

2.viii  Returns of Commercial Banks on frauds and

forgeries 1989 – 2000

2.ix    Returns of Insured banks on frauds and

forgeries 2001 – 2002

2.x     Types of major frauds and forgeries 2002

LIST OF FIGURES

2.a     Amount involved in frauds and forgeries 1989 – 1993

2.b     Amount involved in frauds and forgeries 1994 – 1998

2.c     Amount involved in frauds and forgeries 1999 – 2002

2.d     Actual/expected loss in frauds and forgeries 1989 – 1993

2.e     Actual/expected loss in frauds and forgeries 1994 – 1998

2.f     Actual/expected loss in frauds and forgeries 1999 – 2002

CHAPTER ONE

INTRODUCTION

1.1            BACKGROUND OF THE STUDY

Fraud can be described as a conscious premeditated action of a person or group of persons with the intention of altering the truth or fact for selfish personal monetary gain.  It involves the use of deceit and trick and sometimes highly intelligent cunning and know how.  The action usually takes the form of forgery, falsification of documents and forgery of signature and outright theft.

Employees as well as clients of firms in all industries engage in fraudulent practices all over the world.  Although the existence of frauds in our banks is not an uncommon or unexpected phenomenon, it is worrying because of all the various problems confronting the Nigeria banking industry, that of fraud is easily the most intractable.  The bank industry worries more about fraud because of the rather obvious damaging consequences of the acts on health and for the existence of the institutions.

Frauds in banks nearly always lead to loss of monies – monies that ordinarily belong to someone other than the banks.  This loss results in some cases in reduced level of resources available for the use in the operations of the banks.

According to the Nigeria Deposit Insurance Corporation (NDIC) annual report (2002), shows that 797 cases of fraud was reported in commercial banks and the amount involved in N12,919.55 billion.

In very bad cases where frauds occur with crippling frequency and in wholesale sizes, the bank may be formed to closedown as a result.  When the bank loses money and it is wound up, the customers lose money.  This leads to loss of confidence in the banks and reduced patronage.  In our kind of financial environment where banking habit is being encouraged developed, this could result in a major set back for the efforts.

Fraudulent practices in the Nigerian banking industry is therefore of special concern to the monetary control and supervisory authorities who are charged with the safety of individual banks and the soundness of the banking industry.

1.2            STATEMENT OF THE PROBLEM

Banks operate on the pivot of public confidence and trust on the ability of the bank to deliver as and when demanded.  The Nigerian society is bedeviled with the desire to get rich quick so as to feel important, as Nigerians believe that wealth is the measure of power and importance.  It is in realization of this fact that these “get rich quick” minded set of people direct their attention to defrauding the banks.

Frequent occurrence of frauds ultimately distracts the attention of the management and leads to increased running cost.  time and energies that would have been spent improving customer services would be expanded on preventing frauds.  Monies that would also have gone into service improvement activities would be expended in setting fraud control procedure and systems.

Moreover, during the year 2003, total of 23 banks lost N333.3million to theft and fraud according to the Nigerian Insurers Association (NIA) 2003, annual report.

Another reason why the banking industry like any other, worries about frauds is that it varies widely in nature, character and methodology.

There are two main sources of frauds in banks.