Management Of Fraud In The Commercial Banks
(A Survey Of Selected Banks In Nnewi, Nigeria)
Effectively managing fraud in commercial banks requires a comprehensive approach that encompasses robust detection, prevention, and response strategies. Implementing stringent internal controls, such as regular audits and segregation of duties, helps to mitigate the risk of fraudulent activities. Utilizing advanced technology, including AI-driven algorithms and biometric authentication, enhances security measures and detects suspicious transactions promptly. Furthermore, fostering a culture of ethical behavior and providing continuous training to staff members empowers them to identify and report potential fraud schemes. Collaboration with regulatory authorities and sharing best practices within the banking industry also strengthens defenses against fraud. By adopting a proactive and adaptive stance towards fraud management, commercial banks can safeguard their assets and maintain the trust of customers and stakeholders while optimizing their search engine ranking through content relevant to fraud prevention in banking institutions.
Fraud is finally acknowledgement as a hidden threat to financial institutions in the country. It has remained a Jig Saw Puzzle in our commercial Banks and other financial institutions. People view it with astonishment considering the devastating effects uncontrollability, increasing trend and magnitudes in our news headlines.
In recent times, the frequency of occurrence of fraud and fraudulent practices in almost all non-banking establishment, ministries, schools etc. is unimaginable.
The sporadic rate of spread din banks and even the Apex Bank (CBN) is enough warning signal of eminent doom for the indispensable financialsector of the Nigeria economy.
Based on this fact, this research paper is a source of examining the management reaction towards fraud control using selected commercial banks in Nnewi as a case study.
This study is divided into five-(5) chapter’s chapter one is the introduction outline, deals eminent authors, banking experts, banking chief inspectors and auditors.
Chapter two (2) (literature review) is substantially sub sectioned into various heading which highlight definitions, classification and nature of fraud, causes of fraud, legal implications and liability for losses, manpower resource and financial resource and financial losses resulting from fraud, the innovations in information technology and limitation in human actions.
The concern by the monetary and regulating agencies, the government agencies and all embracing methods of detection and control.
Chapter (3) discuses all research design namely sources of data ie primary and secondary data, questionnaire, face to face interactions with the employees of the three(3) commercial banks in nnewi.
NDIC reports, textbooks, business and financial papers, handout. The area of study was focussed on three (3) banks such as first bank, union bank and all state trust bank, the astonishment used for data collection/questionnaire and personal interviews as well as the derivation formulated and computation of the sample size.
Chapter four (4) leaded presentation and analysis of data,the first section is questionnaire according to how they relate to the research question while the last section in chapter. Four (4) is the summary of result.
Chapter five (5) we have the discussion, recommendation and conclusion of the study, the first section deals with the result obtained from questionaires, the second section on recommendation deals with the researcher suggestion’s towards the problem of the topic and in the conclusion, the final remark of the topic made by the researcher, the researcher made suggestions for further research.
Title page
Approval
Dedication
Acknowledgement
Abstract
Table of Content
List of Figures
List of Tables
CHAPTER ONE
Introduction
Background of Study
Statement of the Problem
Purpose of the Study
Scope of the Study
Significance of the Study
Limitation of the Study
Definition of Terms
References
CHAPTER TWO
Review of Related Literature
Definition of Fraud
Major Cause of Fraud in the Commercial Banks
Legal Implications / Liability For Losses
Effect of Fraud on Human Resources in the Commercial Banks.
Effect of Fraud on the Bank Profits and Losses Account.
Impact of Technology on Fraud.
Punishment and Penalties.
Fraud Detection, Prevention and Control.
Reference
CHAPTER THREE
Research Design and Methodology
Research Design
Area of Study
Population of the Study
Sample and Sampling Procedure Techniques
Instrument For Data Collection
Validation of Instrument
Reliability of Instrument
Method of Data Collection
Method of Data Analysis
References
CHAPTER FOUR
Presentation and Analysis of Data
Summary of Result
References
CHAPTER FIVE
Discussion, Recommendation and Conclusion
Discussion of Result
Conclusion
Implication of Result Findings
Recommendation
Suggestion for Further Research
References
Bibliography
Appendix
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In Nigeria, Bank fraud has assumed a frightening scale and sophistication. The levels in the present day have also grown into epidemic dimension. It has eaten deep into every nerve aspect of our life to the extent that a three years old child talks about 419, (the new discovered sobriquet for an advanced fee fraud) that is shunting us has a nation. The fear is now rife that the increasing wave of fraud in the commercial bank in recent years, if not the commercial banks in recent years, if not arrested, might pose certain threats to the stability and survival of individual, financial institution and the performance of the industry as whole.
For one thing, a fraud result in life financial loses to commercial banks and their customers deposition of shareholder funds and capital base as well as loss of confidence in financial houses.
For another, the incidence of fraud could in the extreme cases lead to the closure of some badly affected banks as have happened in some parts of the world.
The Demise Bank of credit and commerce international (BCCI) London, and the national Banking of Nigeria, the Morgan finance house in Nnewi are few examples.
Many of the distressed banks in Nigeria today suffer from fraud and other fraud relates problem, inside credit abuse and indiscipline.
The extent of fraud in commercial banks rather than that abate has continued to escalate. It is therefore necessary now than ever before that attention is paid to this nefarious international phenomenon as fraudstars become more sophisticated and daring in their approach.
Management of fraud is likened to the management of an ailment.
Before a patient is treated, diagnosis is carried out, the essence of the diagnosis is to define the ailment, thus given the direct or insight towards the root cause, prescription and medication is embarked on latter.
Given this reason, the definitions of what actually constitutes fraud for all practical purpose define precision. This is so because there are multifarious forms, styles, and manifestation in the commercial banks.
Similarly, we are aware that fraud cut cross all sectors of the economy and that the size of an enterprise usually determines the volume of fraud takes different dimensions, which amongst others include the following
(a) Cheating by market women/men on scale measurement.
(b) Failure to pay correct import duties/tax evasion.
(c) Over invoicing and inflating contracts.
(d) Payment for services not rendered.
(e) Stealing and other 419 activities
(f) Political fraud
However, the list is in exhaustive, new methods are devised with all sophistication by fraudstars. Many writers define fraud “as an act or course deception deliberately practiced to gain unlawful or unfair advantages, such deception is directed to the detriment of another”.
In all designs directly or indirectly, covertly or overtly omission or commission, it implies that fraud result in an unfavourable event which occur such that the financial position or cash flow stream of an organization, individual or institution is adversely affected. For sure, cash is the ultimate in all fraud cases,. Thieves so because it is the most valuable asset of a commercial bank and because of its very nature and the difficulty of identification once it has been stolen, it is the highest risk asset most desire it and other criminally minded individual.
The reasons for these are obvious. The first is that it is difficult to prove ownership or determine the second is that it is not difficult to deal with cash or to convert it to other good or chattels, thus making it difficult of the culprit to be apprehended. Quits often, large amounts of cash have mysteriously disappeared from commercial bank without trace and this risk will continue to exist as long as the present monetary system remains a fraud unabated.
In any premeditated act of criminal deceit trick key, or falsification by a person or group of persons with the intention of altering facts in order to obtain undue personal monetary advantage is fraud Chizea whichever way or manner fraud is described, there is always that element of dishonestly, cheating, embezzlement, falsification, exception etc. resultant in loss of frauds .
Fraud is a hydra headed monster in the commercial banks, and banks in general it is not knew that rather it is as old as the industry itself. How even like in greater societies, they have become one of the most intractable problems of modern day banking.
While the concern of the banking community is growing by the day and management vigilance is improving with the help of computerization amongst others. it is on records that millions of naira are still being lost in fraud on a daily basis (CBN)
While some of the fraud are the hand work of outsiders, others are perpetrated by the staff and sometimes management of the bank concerned. The most significant percentage of fraud is done by fraudstars in collaboration with banks staff. As a result of this very source of serious economic crime, some staffs in the industry have either been dismissed or have their opportunities terminated or prematurely retired. This implies that some experienced hands in the sector are lost due to involvement in fraud according to the (NDIC)
Similarly, the involvement of some executives in large-scale fraud is now a serious concern in the industry. Frequent fraud cases have also created grossly awareness to the generality of the public to the level that even the Nigerian union of Banks, Insurance and financial institutions employees (NUBIFIE) affiliate of Nigeria labour congress (NLC) in 1996 Launched aggressive anti-fraud champion. They realized the damages posed by fraud to their numbers, the economy and the publication warns.
“FRAUD IS DANAGEROUS”
BE HONEST DON’T AID OR ABET FRAUD IT IS CRIMINAL KEEP OFF BAD FRIENDS DO TO HAVE FRADULENT INTENTION THINK TWICE
YOU MAY RUIN YOUR CAREER OR END UP IN JAIL
DON’T BETRAY THAT TRUST SAY NO TO FRAUD
GOOD NAME IS BETTER THAN IL-GOTTEN RICHES IF INTEGRITY IOS LOST
ALL IS LOST THE UNION IS BEHIND THE TRUST
1.2 STATEMENT OF THE PROBLEMS
Fraud in the Nigerian commercial Banks has remained an unavoidable problem and also resisted all practicable treatment the incident has not only become incessant but also been on the increase in the recent past.
Although it has assured global dimension, the rate of growth in Nigeria has been outstanding in sophistication from N1542.91 million in 1996 the amount involved in commercial banks alone rose to N3590.31 million in 1997 whereas the actual/expected loss went from N371.08 million to N224.54 million NDIC. This has affected the commercial banks profitability negatively in no small measure.
The general confidence reposed in the banking institutions has become eroded since the new concept of distress bank failures and closure of 1990’s from available records, out of about 115 financial institutions operating in the country as at 1996 surprisingly 52 were distressed while 6 were acquired with frequency of fraud, people are no longer at ease keeping their monies in the conventional banks but prefer to keep them in their houses or concretize them in wares (An uncivilized practice for undeveloped economy). The internal control measures in the commercial banks seen to have fault. Such that it has aided the perpetration of fraud. As a result, the industry shares 90% off all cases of malpractices, forgeries and frauds.
Going through the papes of the financial dailies, one wonders at such shucking comment or writes ups like unstilling sanity in banking industries. To fresh bank chiefs for trial, 7 suspended over alleged bank frauds and acquired banks and their survival etc. as a conclusion that fraud and fraud related activities have become an attractive stock in trade in the banking industry.
Be that as it may be, we consider the higher rate of fraud in banks as clearly unacceptable. Sometimes drastic ought to be done ungently to stem the tidy in view of it’s image implication for the banking industry and the crises of confidence with it could further agenda among bank customers.
The study is therefore undertaken to find a lasting situation to all the above problems.
1.3 PURPOSE OF THE STUDY
1. To determine the effects of the management efficiency in relation to the number of staff involved in bank fraud.
2. To ascertain the adequency of internal control measures in the operation of the bank with a view to identifying the units that are porous to malpractices.
3. To identify the role of sophisticated accounting machine (computer) towards fraud detection and control.
4. To find out the effect of staff incentives in relation to aiding and abetting fraud in the commercial banks.
5. Determine the effect of moral value system the society towards the perpetration of fraud in the commercial banks.
6. To recommend measure that will be adequate to control fraud in the commercial banks.
1.4. SCOPE OF THE STUDY
Although, the study is to cover all commercial banks the researcher focuses on three commercial banks, which are taken on representative sample. These banks are union Bank of Nigeria PLC, first Bank of Nigeria PLC and All State Trust Bank Ltd.
1.5 SIGNIFICANCE OF THE STUDY
The study if management of fraud is relevant in many respects.
1. It could educate bank management on forms and methods frauds is perpetrated so far in the commercial banks.
2. This study will be much benefit to depositors who believe that money lodged with commercial banks is free of risk of lose especially through peculation.
3. It also serves as a reference paper from which to develop a joint fraud information and credit rating system to facilitate the identification of undesirable potential/actual customers and as well as employees.
4. It serves to weaken the plans/interest of fraud stars.
5. It’s spurns the local branch management to set up an effective banking supervision division at branch level charged with the supervisory function in the branch.
6. It could represent an input which occasionally reflect in the governments’ financial guideline used by the monetary authorities (CBN, NDIC) to control activities of the commercial banks.
1.6 LIMITATION OF THE STUDY
While carrying out the study, the researcher encountered several difficulties.
1. Transportation
The delays encountered while trying to reach the bank in session on several occasions failed as a result of non- availability of transport.
2. Finance
The researcher because of urgent domestic financial problems could not arise sufficient money needed to procure and process input required for the study.
3. Time Factor
The researcher relied much on hired personnel during the distribution and collection of questionnaire due to some official engagements.
In addition, some questionnaires sent by post to respondents in the above banks were not responding to and ever some responded only to leave vita information unanswered.
1.7 DEFINITION TERMS
COMPUTERS:
An electronic device which on receipt of an appropriate input is capable of processing the input according to a set of previously supplied instruction and making result (out put) available if desired (Data processing and management information system) Wole-Adewanmi/ Titi Akinlade
COMMERCIAL BANKS:
Any bank in Nigeria whose business includes the acceptance of deposits withdrawal by cheque (Banking methods and processes) Mike Anyanwokoro Hosanna publication,. Enugu 1996.
ASSET:
This is what a person or business owns (EF. Castle/PN. OWENS)
FRAUD:
Deceit, dishonest dealing: one who pretends to be other than he is
NDIC:
Nigeria Deposit Insurance Corporation.
CAPTIAL BASE:
This is the amount contributed by the owner of the future earnings. (banking methods and processes) Mike Anyanwoko Hosanna publication Enugu 1996
SHAREHOLDERS FUNDS:
These are paid up capital, share premium, station reserves, retained earnings (undistributed profit) general reserves, minority interest and other subsidiary reserves excluding preference shares and revaluation reserves. Banking method and processes) Mike Anyanwoko Hosanna Publication, Enugu 1996.
Managing fraud is a critical aspect of the operations of commercial banks to ensure the security and trust of their customers and stakeholders. Fraud in commercial banks can take various forms, including identity theft, credit card fraud, insider fraud, and cyber fraud. Here are some strategies and measures that banks typically implement to manage and prevent fraud:
- Risk Assessment and Prevention:
- Banks should conduct thorough risk assessments to identify potential vulnerabilities and weak points in their systems and processes.
- Implement strong authentication mechanisms for online banking, including multi-factor authentication (MFA) and biometric authentication.
- Regularly update and patch software and systems to protect against known vulnerabilities.
- Employ advanced anti-malware and intrusion detection systems to detect and prevent cyberattacks.
- Customer Awareness and Education:
- Educate customers about common types of fraud, such as phishing scams, and provide guidance on how to protect themselves.
- Encourage customers to regularly review their account statements and report any suspicious activity promptly.
- Internal Controls:
- Implement strong internal controls to prevent insider fraud. This includes segregation of duties, dual authorization, and monitoring of employee activities.
- Conduct thorough background checks on employees, especially those with access to sensitive information or transaction capabilities.
- Fraud Detection and Monitoring:
- Implement advanced fraud detection systems that use machine learning and AI to identify unusual patterns of transactions and behaviors.
- Set up alerts for potentially fraudulent activities, such as large transactions or multiple failed login attempts.
- Customer Verification and Due Diligence:
- Conduct thorough customer due diligence to verify the identity of customers and assess the legitimacy of their transactions.
- Regularly update customer information and ensure KYC (Know Your Customer) compliance.
- Reporting and Communication:
- Establish clear channels for customers to report any suspicious activity and ensure timely response and investigation.
- Collaborate with law enforcement and regulatory agencies to share information about fraud trends and incidents.
- Employee Training:
- Train bank employees on recognizing and reporting potential fraud indicators.
- Provide ongoing training to keep employees up-to-date with the latest fraud techniques and prevention strategies.
- Incident Response Plan:
- Develop a comprehensive incident response plan to outline the steps to be taken in case of a fraud incident.
- Ensure that the plan covers communication with customers, law enforcement, and regulatory authorities.
- Data Encryption and Security:
- Implement strong encryption protocols to protect sensitive customer data both in transit and at rest.
- Regularly audit and assess data security measures to ensure they are up to date.
- Regular Audits and Reviews:
- Conduct regular internal and external audits to assess the effectiveness of fraud prevention measures and identify areas for improvement.
Managing fraud in commercial banks is an ongoing process that requires a combination of technology, policies, and vigilant monitoring. By implementing these strategies and staying proactive, banks can minimize the risk of fraud and protect the interests of their customers and stakeholders.