Fraud prevention detection and control In banking industry
(A Case Study Of Habib Nigeria Bank Limited Enugu)
Fraud prevention, detection, and control in the banking industry are paramount to safeguarding financial institutions and their customers against various fraudulent activities. Banks employ a multifaceted approach to combat fraud, utilizing advanced technologies such as machine learning algorithms, AI-based anomaly detection systems, and biometric authentication methods to identify suspicious patterns and activities in real-time. Additionally, stringent regulatory compliance measures, robust internal controls, and regular audits are implemented to ensure adherence to industry standards and guidelines. Employee training programs also play a crucial role in raising awareness about potential fraud schemes and enhancing vigilance across all levels of the organization. By continuously evolving their strategies and adopting innovative solutions, banks strive to stay one step ahead of fraudsters and uphold the trust and integrity of the financial system.
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.
From the study, such factors like poor staffing, poor remuneration, 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 which 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.
Title page ii
Approval page iii
Dedication iv
Acknowledgement vi
Abstract vi
List of table vii
Table of contents viii
CHAPTER ONE
Introduction 1
1.1 Back of the study 1
1.2 Statement of problems 4
1.3 Objectives of the study 5
1.4 Scope of the study 5
1.5 Research questions 6
1.6 Significance of the study 6
1.7 Definition of terms 8
CHAPTER TWO
2.0 Literature review 10
2.1 The causes of fraud in banking sector 10
2.2 The effect of frequent fraud occurrence
in the banking industry 15
2.3 The relationship between banking practices
and fraud perpetration 16
2.4 The impact of banks and government’s
effort on fraud elimination 18
2.5 Definition of fraud 21
CHAPTER THREE
Research Methodology 26
3.1 Research design 26
3.2 Area of study 28
3.3 Population of study 28
3.4 Sample and sampling procedure 29
3.5 Instrument for data collection 29
3.6 Reliability of the research instrument 29
3.7 Validity of the research instrument 29
3.8 Method of administration of the research instrument 30
3.9 Method of data analysis 31
CHAPTER FOUR
4.0 Data presentation and results 32
4.1 Research Question No.1 33
4.2 Research Question No.2 34
4.3 Research Question No.3 35
4.4 Research Question No.4 36
4.5 Research Question No.5 37
4.6 Research Question No.6 38
4.7 Research Question No.7 39
4.8 Research Question No.8 40
4.9 Research Question No.9 41
4.10 Research Question No.10 42
4.11 Research Question No.11 43
CHAPTER FIVE
Discussion 46
5.1 Discussion of results 46
5.2 Conclusions 47
5.3 Implications of the results 48
5.4 Recommendations 48
5.5 Suggestions for further research 49
5.6 Limitation of the study 50
Reference 51
Appendices 53
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 the sectors of the economy. In the financial sector, fraud is an `offshoot’ of financial crimes which covers offences, which are securities, related and involves 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 institution for the benefit of another. Financial fraud include but are not limited to the following, chequekiting, loan fraud, advance fee fraud, securities fraud, account opening fraud, insiderdetling 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, infact, 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 collaborated effort between outsiders and staff to perpetrate this financial crime.
Against this background, 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 offences commission (ICPC), which is the apex body, saddled with the responsibility of fighting corruption and other related offences. 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 ON MY CASE STUDY
HABIB NIGERIA BANK LIMITED
Habib Nigeria bank Ltd was incorporated as a private limited liability company in November 1982. It was granted banking license on 7th March 1983 and commenced operation on 16th May of same year.
The objectives of the bank have been to introduce and maintain a banking style with a difference in Nigeria style with a difference in Nigeria and develop a sound bank with branch network in all the states of the federation and the capital territory, Abuja. It also has it objective to provide financial and technical assistance to the public and private sector organizations within the framework of government of Nigeria’s plan and policies. It also mobilizes deposits by encouraging savings through the introduction of effective banking services and effective advertising programme. 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 of banking as the 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 that the bank has fraud infection but this is to help one form on opinion on what may be obtained in other banks but not in any way referring to banks with dubious staff. During the course of this study, it was revealed that Habib Nigeria bank Ltd has received series of congratulatory letters from the central bank of Nigeria on its operational system and in built mechanism to check mate fraud and other related financial crime.
The board of the bank is presently composed of seven (7) Pakistanis with Mr. L.K. Abiola as 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 with 59 branches in 35 states and the federal capital territory.
1.2 STATEMENT OF PROBLEMS
For any solution to be preferred for a problem must be properly identified. Fraud in the banking sector is not committed by the system but 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 stated here
(i) The remote causes of fraud in the banking sector.
(ii) The frequency of fraud occurrence 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 occurrence in the banking industry.
(iii) To determine banking practices that encourages 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 wastages, more than ever before, becomes compelling. Thus, fraud which ahs over the years constituted substantial drawn on the vaults of banks and other financial institutions, needs not only be detected on time, but must also be prevented and controlled. Hence, the importance of this research work, fraud prevention, detention and control in Nigeria 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 occurrence in the banking sector?
(iii) To what extent does banking practices encourage fraud?
(iv) What are the efforts of banks and government against fraud?
1.6 SIGNIFICANCE OF THE STUDY
This research title – fraud prevention, detection and control in 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 stem 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 frauds and ways to curb tem are also identified by this research work.
This research therefore is of great importance to every bank’s management that want 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 blue print of solutions to frauds. 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 carry out research on 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 corporations that provide 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 the time undergone some levels of refinement and sophistication. Fraud can summarily be described as an act carried out by individual in order 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 offences which are securities-related and involves the movement, transfer or use of monetary instruments in circumstances which render such act unlawful. In context of the on-going efforts to senitize 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 some one or institution for the benefit of another.
Fraud prevention detection and control In banking industry:
Fraud prevention, detection, and control are crucial aspects of the banking industry due to the potential financial losses and damage to customer trust that can result from fraudulent activities. Banks implement various strategies, technologies, and processes to mitigate the risks associated with fraud. Here’s an overview of how fraud prevention, detection, and control work in the banking industry:
- Fraud Prevention:
- Customer Education: Banks educate their customers about common types of fraud, such as phishing, identity theft, and social engineering. Educated customers are more likely to recognize and avoid suspicious activities.
- Multi-Factor Authentication (MFA): Banks implement MFA to enhance security by requiring customers to provide multiple forms of verification (e.g., password, fingerprint, SMS code) when accessing their accounts.
- Secure Online Banking: Banks use encryption and secure communication protocols to protect customer data during online transactions and communication.
- Regular Software Updates: Banks ensure that their systems and software are up to date to patch security vulnerabilities that fraudsters might exploit.
- Transaction Monitoring: Banks monitor customer transactions for unusual patterns, such as large withdrawals or transfers, to identify potentially fraudulent activities.
- Fraud Detection:
- Advanced Analytics and AI: Banks use artificial intelligence and machine learning algorithms to analyze large volumes of data and identify anomalies and patterns that might indicate fraudulent activities.
- Behavioral Analysis: Banks track customer behavior and transaction history to establish a baseline of typical activities. Deviations from this baseline can trigger alerts for further investigation.
- Real-time Monitoring: Real-time monitoring systems can detect and flag suspicious transactions as they occur, allowing banks to take immediate action to prevent further fraud.
- Fraud Control:
- Transaction Verification: For high-risk or suspicious transactions, banks may contact customers to verify the legitimacy of the activity before allowing it to proceed.
- Blocking and Freezing: If fraudulent activity is suspected, banks can block or freeze accounts temporarily to prevent further unauthorized access or transactions.
- Collaboration: Banks often collaborate with law enforcement agencies, industry organizations, and other banks to share information about emerging fraud trends and threats.
- Fraud Investigation: Banks have specialized teams that investigate fraudulent activities, gather evidence, and work with law enforcement agencies to prosecute criminals.
- Continuous Improvement:
- Adaptive Solutions: As fraudsters develop new tactics, banks continuously update their fraud prevention strategies and technologies to stay ahead of evolving threats.
- Feedback Loops: Banks use data from fraud incidents to refine their detection algorithms and improve the accuracy of their systems.
It’s important to note that no system is completely foolproof, and fraud prevention is an ongoing challenge. The banking industry is constantly evolving its approaches to stay ahead of sophisticated fraudsters and protect both the financial assets of customers and the integrity of the banking system.