Bank Fraud And Its Effects On Economy
(Case Study Of Afribank Nigeria Pic Enugu)
Bank fraud, whether perpetrated through insider collusion, cybercrime, or identity theft, inflicts significant damage on the economy by eroding trust in financial institutions and undermining market stability. The repercussions of bank fraud extend beyond direct financial losses to encompass broader economic consequences, including increased borrowing costs, reduced investment, and diminished consumer confidence. As financial institutions allocate resources to mitigate risks and cover losses, they divert funds from productive investments, constraining economic growth. Moreover, the erosion of trust in banking systems can lead to capital flight, exacerbating liquidity shortages and hindering credit availability for businesses and individuals. Ultimately, the prevalence of bank fraud undermines the integrity of financial markets and erodes public confidence in the economy, impeding its ability to function efficiently and sustainably.
Cases of frauds and foreign in banks have not only become incessant but have also been on the increase in recent years. Although frauds and foreign in banks are global phenomena, their growth in Nigeria Deposit Insurance Corporations (NDIC) annual report for instance, presents a disturbing picture of rising trends of fraud in banks from N360.2 million in 1992 to N351.9 million in 1991. The amount unloved in frauds in commercial banks alone rose to N1, 377.15 million in 1993, whereas the actual expected loss rose from N64.8 million to N241.0 million.
Fraud, in banks is clearly unacceptably something’s drastic ought to be done to gently stem the tide in view of its image implications for the banking industry and the adverse effects it will have on the economy. The study emerges in response to this development. In carrying out this research work, questionnaires were distributed to the respondents for their reactions. Equally oral interviews were also carried out and some texts written by eminent scholars were consulted. The researcher believed all these would give enough information for a sound report. This study therefore seeks to identify the causes and effects of book fraud. After analyzing the returned 25 questionnaire distributed to the staff of Afribank Nigeria PLC Enugu, the following findings were made:
1. No internal control system is 100% errors proof but the internal control system of banks can be designed to make the perpetration of fraud difficult.
2. Non-periodic review of work by bank management gives loophole and the tendency to commit fraud in the industry.
3. The law enforcement agencies of the countries fail to deal seriously with the bank fraud sters apprehended and handed over to them.
Based on these, the following recommendation were made:
1. The use of close circuit television surveillance should be commencing in all banks.
2. Bank should ensure that computer operator’s passwords are kept in safe hands when there is movement of Alfred staff.
CONTENTS PAGES
COVER PAGE
TITLE PAGE
APPROVAL PAGE
DEDICATION
ACKNOWLEDGMENT
ABSTRACT
CONTENTS
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
1.2 STATEMENT OF PROBLEMS
1.3 PURPOSE OF THE STUDY
1.4 RESEARCH QUESTIONS
1.5 SIGNIFICANCE OF THE STUDY
1.6 SCOPE AND LIMITATION
CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 MAJOR CAUSES OF BANK FRAUD
2.1.0 INSTITUTIONAL CAUSES OF FRAUD
VOLUME OF WORK
NUMBER OF STAFF
NATURE OF SERVICE
BANKING EXPERIENCE
INADEQUATE / LACK OF STAFF TRAINING
POOR MANAGEMENT
STAFF NEGLIGENCE
RECRUITMENT SYSTEM
POOR SECURITY ARRANGEMENT FOR DOCUMENTS
USE OF SOPHISTICATED ACCOUNTING MACHINES
FRUSTRATION
INADEQUATE INFRASTRUCTURE
LAPSES IN THE MANAGEMENT
CONTROL SYSTEM OF CORPORATE CUSTOMERS
2.1.1 ENVIRONMENTAL / SOCIAL CAUSES
SOCIETAL VALUE
PERSONALITY PROFILE OF DRAMATIZE PERSONNEL
SLOW LEGAL PROCESS
LACK OF EFFECTIVE DETERRENT PUNISHMENT
2.2 EFFECTS OF BANK FRAUDS
2.2.0 EFFECTS OF BANK FRAUD ON THE BANKING INDUSTRY
CRISES OF CONFIDENCE AMONG BANK CUSTOMERS
IMAGE IMPLEMENTATIONS
2.2.1 EFFECTS ON OUR ECONOMY
2.3 NATURE AND TYPES OF FRAUD
2.3.0 ADVANCED FEE FRAUD
2.3.1 CHEQUE KITTING FRAUD
2.3.2 ACCOUNT OPENING FRAUD
2.3.4 MONEY TRANSFER FRAUD
2.3.5 LOANS FRAUD
2.3.6 COUNTERFEIT SECURITIES
2.3.7 CHEQUE FRAUD
2.3.8 MONEY LAUNDERING FRAUD
2.3.9 CLEARING FRAUD
2.3.10 COMPUTER FRAUD
2.3.11 TELEX FRAUD
CHAPTER THREE
3.0 RESEARCH DESIGN AND METHODOLOGY
3.1 AREA OF STUDY
3.2 POPULATION
3.3 SAMPLE SIZE
3.4 SAMPLING METHOD
3.5 INSTRUMENT FOR DATA COLLECTION
3.5.1 QUESTIONNAIRE
3.5.2 PERSONAL INTERVIEW
3.5.3 SECONDARY DATA
3.6 ANALYTICAL TOOLS
CHAPTER FOUR
4.0 DATA ANALYSIS AND INTERPRETATION OF RESULT
4.1 ANALYSIS OF OPERATIONAL QUESTIONS
CHAPTER FIVE
5.0 SUMMARY OF FINDINGS
5.1 RECOMMENDATION
5.2 OTHER CONTROL MEASURES
5.3 CONCLUSION
BIBLIOGRAPHY
QUESTIONNAIRE
INTRODUCTION
BACKGROUND OF THE STUDY
The level of fraud in the present day Nigeria has assumed on 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 given to the newly discovered fees fraud that is hunting us a nation. Fraud is defined as “deceit or tricking deliberately practiced in order to gain some advantages dishonestly.” For an action to constitute fraud therefore there must be a dishonest intention and the action must be intended to benefit the perpetrator to the detriment of another person.
Going by this definition, frauds in the Nigeria economy cannot be restricted to the banks alone. Although frauds cut across all sectors of the economy and that size of an enterprises usually determines the volume of frauds perpetrated, such problems as inadequate manpower, poor internal control system, inadequate incentives and unsuitable legal framework for dealing with offenders, downturn in the economy, recognition being accorded the wealthy people regardless of their sources of wealth play a major role in the perpetration of frauds. The fear now is the threats which this devilish and unscrupulous act will pos to the stability and survival of individual financial institution and the performance of the industry as a whole for one things, frauds result in huge financial losses to financial institutions and their customers, depletion of shareholders frauds and capital base as well as loss of confidence in financial institutions.
Frauds and foreign also have negative effect on the banking industry. Today, various banks cannot withstand the growing pressure of competition among various banks due to the monster called bank frauds. Equally, the confidence place on banks are fast eroding because some people new prefer keeping their money at their homes instead of keeping them in the banks. The fear is now ………….. that if this act is not arrested, it might deplete our resources because foreign investors might not find it wise to transact business via our banks.
1.2 STATEMENT OF PROBLEMS
The problems of this research work will revolve around finding out the continuous cases of bank frauds in virtually all banks and other financial institution. Other problems include why banks have not been able to find solution that will help in curbing the banks and financial institutions frauds.
Furthermore, the research is aimed at finding the economic effects of frauds to the total economy of the nation, and the consequences of these frauds to our international relationship on global market economy.
1.3 PURPOSE OF THE STUDY
The purpose of this study is to identify the efforts of government and its agencies in the prevention and control of fraud. By so doing, one would have emphasized the tripartite segments involved in fighting this economic crime which is threatening the very foundation of the financial system. To be able to do this, this research seek to identify the following:
a. The causes of banks fraud in Nigeria.
b. The nature of bank frauds.
c. The extent of bank fraud in Nigeria and
d. Ways of minimizing or eliminating bank fraud in Nigeria.
1.4 RESEARCH QUESTIONS
The following research questions guided this study:
1. Does lack of effective internal control lead to banking fraud?
2. Does lack of enough motivation or incentive causes banking fraud?
3. Is bank fraud common in all banks?
4. Do societal values contribute to bank fraud?
5. Do bank frauds contribute to the dwindling economy fortune of our country?
1.5 SIGNIFICANT OF THE STUDY
The research work will be beneficial to bank and financial institutions who are directly facing extrication as a result of financial losses due to fraud. It will also be beneficial to the government and other public factors who are gradually bank confidence in banks, and the customers banks relationship that are greatly hampered as a result of frauds.
This project will also be beneficial to the general public who are losing huge sums of money to banks that are declared distress without adequate compensation. It will enable them know the various ways frauds are perpetrated. This can give them on insight to detect frauds easily. The general public will also benefit, as this will enable them know the role of the organizations or the management in checking frauds.
1.6 SCOPE AND LIMITATIONS
Bank fraud and its effects on our economy, is an extensive topic that may involve commercial banks and community banks. The researcher would like to touch all aspects of banking activities, but for want of time and financial constraints, the researcher limits his work to frauds in the commercial banks especially Afribank Nigeria PLC Enugu.
Most importantly, records and publications could be reached easily and frauds traced in the commercial banks than other banks. Though the writer dwelled a little into fraud in merchant Banks emphasis is place more on commercial banks.
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Bank Fraud And Its Effects On Economy:
Bank fraud refers to the act of using illegal means to obtain money, assets, or other property owned or held by a bank, financial institution, or individual account holders through deceitful or dishonest practices. Bank fraud can have significant negative effects on the economy, affecting various stakeholders, including individuals, businesses, and the overall financial system. Here are some of the key ways in which bank fraud can impact the economy:
- Loss of Trust and Confidence: Bank fraud erodes public trust and confidence in the financial system. When people fear that their savings or investments may be vulnerable to fraud, they are less likely to participate in financial markets, leading to reduced economic activity.
- Financial Institution Stability: Bank fraud can threaten the stability of financial institutions. If a bank suffers significant losses due to fraudulent activities, it may require government intervention or a bailout, which can strain government resources and negatively impact the overall economy.
- Increased Costs: Banks and financial institutions invest heavily in cybersecurity and fraud prevention measures. When fraud occurs, these institutions often need to increase their security and risk management efforts, leading to higher operational costs. These costs may be passed on to customers in the form of higher fees and reduced interest rates on savings accounts.
- Reduction in Economic Growth: Bank fraud can slow down economic growth by diverting resources away from productive activities and towards fraud detection and mitigation. The time and money spent on investigating and addressing fraud could be better utilized for productive investments.
- Credit Availability: Fraudulent activities can lead to tighter lending standards and reduced access to credit for individuals and businesses. Financial institutions become more cautious in their lending practices, which can stifle business expansion and consumer spending.
- Market Distortion: Fraudulent activities can distort financial markets. For example, if traders manipulate stock prices through fraudulent schemes, it can lead to artificially inflated or deflated asset prices, causing market instability and misallocation of resources.
- Erosion of Savings: Individual and corporate bank accounts are often targets of fraud. When accounts are compromised, people and businesses can lose their savings or face financial hardship, which can have a ripple effect on the broader economy.
- Regulatory Response: In response to bank fraud, governments and regulatory bodies often introduce new regulations and oversight measures. While these are necessary to prevent future fraud, they can also create administrative burdens for financial institutions and businesses.
- Reputation Damage: Banks and financial institutions involved in fraud cases can suffer severe damage to their reputation. This can result in loss of customers, shareholders’ confidence, and decreased market value, affecting their ability to operate effectively and contribute to the economy.
- International Implications: In today’s interconnected global economy, bank fraud can have international repercussions. Cross-border fraud cases can strain diplomatic relations and disrupt international trade and finance.
To mitigate the effects of bank fraud on the economy, governments, financial institutions, and individuals must work together to strengthen cybersecurity measures, enforce strict regulations, and promote financial literacy and awareness. Effective prevention and detection of bank fraud can help maintain trust in the financial system and support economic growth.