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					 FRAUD MANAGEMENT IN THE NIGERIAN

    BANKING INDUSTRY (2000 – 2008)


                      BY:

      ABUBAKAR HALIMATU SADIA

           MATRIC NO: 06/66MC010



  BEING A RESEARCH PROJECT SUBMITTED TO THE

DEPARTMENT OF BUSINESS ADMINISTRATION, FACULTY

 OF BUSINESS AND SOCIAL SCIENCES, UNIVERSITY OF

      ILORIN, ILORIN, KWARA STATE, NIGERIA



 IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

 THE AWARD OF BACHELOR OF SCIENCE (B.SC) HONS

       DEGREE IN BUSINESS ADMINISTRATION



                   JUNE, 2010
                            CERTIFICATION

       This project has been fully read, certified and approved as meeting

the requirement for the award of Bachelor of Science (B.Sc) Degree in

Business Administration, Department of Business Administration, Faculty

of Business and Social Sciences, University of Ilorin, Ilorin, Kwara State.

………………………………                                            ……………………..

DR. O. A. ILESANMI                                             Date
Project Supervisor


………………………………                                            ……………………..

DR. (MRS) S. L. ADEYEMI                                        Date
Head of Department


………………………………                                            ……………………..

PROF. A. F. ADEDAYO                                            Date
Dean of Faculty


………………………………                                            ……………………..

External Supervisor                                            Date




                                     II
                           DEDICATION

      This project work is dedicated to Almighty Allah Subhana Wata

Ala, who has been my guidance from the beginning of this programme.

Also, to my parents Alhaji Abubakar Ibrahim and Mrs. Aishat Abubakar

and to my step-mother Mrs. Maryam Ibrahim for their support in all

ramifications throughout my stay in school, May Allah bless you.




                                  III
                     ACKNOWLEDGEMENTS

      All praise is due to Almighty Allah (S.W.A) for His continuous

mercy, guidance and protection on me and for making this degree

programme a reality for me.

      Special thanks to my supervisor Dr. O. A. Ilesanmi who has

been a source of inspiration to me for his unrelenting efforts,

guidance and support towards the completion of this project work.

      I really appreciate the unique guidance and support given to

me by my loving parents Alhaji Abubakar Ibrahim, Mrs. Aishat

Abubakar and Mrs Maryam Abubakar. And also my big sister Mrs.

Khadijatu Muhammed in my academic pursuit and in all walks of life.

      To my lecturers, Dr. (Mrs.) S. L. Adeyemi, Dr. J. O. Adeoti, Dr.

J. O. Olujide, Dr. U. Gunu, Dr. J. A. Bamiduro, Dr. J. A. Oladipo, Dr.

R. A. Gbadeyan, Dr. S. B. Babaita, Dr. M. A. Aremu, Mr. I. B. Kadri,

including   non-academic    staff   of   the   department   who   have

contributed in one way or the other towards the success of my

programme, I say a big thank you, I am very grateful.

      My profound gratitude also goes to my sisters and brothers,

Khadijatu, Hajara, Bilikisu, Maryam, Ayisatu, Mr. Ibrahim Abubakar,


                                    IV
Muhammed, Usman, Sulayman, Ali and my remaining siblings, you

have been marvelous.

      The effort of staff(s) of CBN and NDIC in providing me with

relevant information on my project work cannot be over emphasized.

      My appreciation also goes to my friends, Safiya, Cynthia and

my roommates; you have been excellent in providing moral support.

      I seize this opportunity to tender my apology to those people, I

do not mention but I assure you I appreciate your support as well.




                                  V
                      TABLE OF CONTENTS

                                          PAGE

TITLE                                      I

CERTIFICATION                              II

DEDICATION                                 III

ACKNOWLEDGEMENTS                           IV - V

TABLE OF CONTENTS                          VI - VIII



CHAPTER ONE

INTRODUCTION

1.1   Background to the Study                  1

1.2   Statement of the problem                 5

1.3   Aim and Objectives of the Study          6

1.4   Significance of the Study                7

1.5   Research Questions                       8

1.6   Scope of the Study                       8

1.7   Limitations of the Study                 9

1.8   Study Plan                           10

1.9   Definition of Key Terms              11


                                  VI
CHAPTER TWO

LITERATURE REVIEW

2.1   Meaning of Fraud                                  13

2.2   Management Control Measures on Fraud              16

2.3   Types of Fraud                                    18

2.4   Causes of Fraud                                   22

2.5   Method of Preventing Fraud                        28

2.6   Current Fraud Practices in Nigeria                30

2.7   Cheque Frauds                                     33

2.8   Fraud Control Variables                           37

2.9   Prudential Guidelines for Banks                   43



CHAPTER THREE

RESEARCH METHODOLOGY

3.1   Historical Profile of Nigerian Banking Industry   45

3.2   Research Hypotheses                               50

3.3   Data Specification                                52

3.4   Method of Data Collection                         52

3.5   Method of Data Analysis                           53


                                  VII
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1   Total Amount involved in Fraud and Forgeries   54

4.2   Total Expected loss in Fraud and Forgeries     56

4.3   Total Cases in Fraud and Forgeries             57

4.4   Staff Involvements in Fraud and Forgeries      58

4.5   Test of Hypotheses                             59



CHAPTER FIVE: SUMMARY, CONCLUSION AND

                   RECOMMENDATIONS

5.1   Summary                                        68

5.2   Conclusion                                     70

5.3   Recommendations                                71

References                                           74




                               VIII
                         CHAPTER ONE

                         INTRODUCTION

1.1 Background to the Study

      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 old child talks about yahoo mail or 419,

newly discovered sobriquet for advanced free fraud that is hunting

our banking industry. Nigeria, with all of its natural and human

resources tethers on the brink of destruction because of fraud. Much

of what we do is “cutting leaves” instead of dealing with the root

problem.

      Generally, fraud takes its roots from the human heart. It is an

axiom that the heart is deceitful above all things and is desperately

wicked. Fraud is the number one enemy of the business world, no

company is immune to it and it is in all works of life, Nwankwo

(1991). The fear is now rife that the increasing wave of fraud in the

financial institutions in recent years, if not arrested might pose

certain threats to stability and the survival of individual financial

institution and the performance of the industry as a whole and no


                                -1-
area of the economy is immune from fraudsters and even the

banking system. Fraud if not checked might cause run on in the

banking sector.

      The existence of financial intermediaries automatically takes

care of the sizes of fund existing in the economy. Financial

intermediaries are financial institutions that intermediate between the

surplus sector of the economy (household) and the deficit sector of

the economy (government, business enterprise) by mobilizing the

surplus sector of the economy to save part of their income that are

not consumed and repackage it for lending to the deficit unit at a

considerable interest rate. Examples of financial institutions we have

in Nigeria are: Banks, Insurance companies, savings and loans.

      The major problems confronting the financial institution today

is “fraud”, which has sent many of them out of business and is

making the industry customers to loose confidence in them since,

since they have not been able to curb the ugly event called “fraud”.

      The   annual    report   of    the   Nigeria   Deposit   Insurance

Corporation (NDIC) over the year indicates that bank fraud remains

unabated and this still threatens the well-being of the banking


                                    -2-
industry. NDIC warns the nation year after year about dangers

posed to the banking sector by fraud and also explained to the

players in the industry that the sad and unfortunate incidence of

increasing frauds and forgeries in the industry will not only deplete

the banks capital but will contribute to the erosion of depositors

confidence in the system. Before 1986, banks reporting cases on

fraud were of no consequence. Returns were very low or just

moderate, the number of banks was few and salary levels were low

compared to other sectors of the economy.

      By and after 1986, with the introduction of Structural

Adjustment Programme (SAP) profits rose to high levels returns on

investment rose, salaries became more attractive and public

attention to banking increased.

      By 1989, some banks recorded 3105 million frauds with

commercial banks having 392.2 million and merchant banks having

37 million, (References to Business Times of 20th August, 1990).

      Fraud as defined by Olufidipe (1994) as “Deceit or trickery

deliberately practiced in other to gain some advantage dishonestly”.

Fraud is a hydra headed phenomenon that displays its presence in


                                  -3-
different forms. Such various form includes: money transfers fraud,

fraudulent lending, cheque kitting, transaction fraud, letter of credit

fraud, borrowing from the till, Anti-money laundering, credit and debit

card fraud, first party fraud, internet fraud to mention but a few.

      Fraud does not just happen, but perpetrate by human beings

with reasons or motivations. The two main causes of fraud are both

external and internal factors. Bank fraud and robbery are

manifestations of deviant social behaviour. Today, the rising trend in

bank fraud and robbery can be traced to certain antecedents of the

contemporary society. In Nigeria of recent years and today, there is

prevalent moral decadence reflecting fast weakening and debased

value system. For example, wealth, irrespective of its source now

commands a high premium in Nigerian society.

      The internal cause of fraud today in the banking industry can

be traced to the following internal environmental factors: corrupt or

weak management, ineffective control system, poor personnel

practices, shortage of experienced and expertised staff, because the

installation and day-to-day implementation of a bank are the

responsibilities of the top management of the bank. Infact, as


                                  -4-
affirmed by Comer (1985), “the scale of fraud in an organization is a

reflection of the ability of its managers to manage”, i.e. in a bank

where the top management is known to engage in corrupt banking

practices, fraud will be common among the junior staff.

      To minimize or control the alarming rate of fraud in the

banking industry, there ought to be need for the players in the

industry to set up and implement an effective and efficient control

system that will adequately monitor the daily activities of the industry

without leaving any gap. Consequently, appropriate personnel

policies and practices should be put in place since fraud is

committed by people of moral decadence.



1.2   Statement of the Problem

      The problem which militates against fraud management in the

banking industry which this study seeks to profer solution to are:

    Lack of efficient and effective internal control system in the

      banks.

    Inability of the bank officials to consistently follow the

      established banks procedures in the course of their operation.


                                  -5-
   Inadequate training opportunities to the bank officials on fraud

      detection.

   Non availability of developed process of identifying fraud,

      related control designed to minimize the risk involved

      constantly, review and update.

   Lastly, ineffective physical control system of operation.



1.3   Aim and objectives of Study

            The aim of the study is to examine fraud management

  in Nigerian banking industry. The objectives of the study includes

  the following:

         1. To explain what is meant by the term fraud.

         2. To describe the various types of fraud.

         3. To identify and explain causes of fraud in Nigerian

            banking industry.

         4. To examine fraud and forgeries cases in Nigeria.

         5. To make recommendations as to how fraud and

            forgeries can be drastically reduced if not totally

            eradicated in Nigerian banking industry.


                                -6-
1.4    Significance of the Study

       This research work will educate the general public as to the

following:

   -   Meaning of fraud

   -   The causes of fraud

   -   The types of fraud

   -   The role of auditors and other measures to minimize the

       cause, preventing and control of fraud.

       Through this study, bank customers would be sensitized and

be caution in dealing with the bank as to the occurrence of fraud.

       Also, the officials of the bank would be educated to be

cautious when rendering their services and help their customers

against fraud.

       It is essential to note that fraud can erode the assets of the

banks thereby causing the untimely death of the bank, if not

controlled or minimized. Hence, this study will be relevant to the

banking industry to help check fraud.




                                 -7-
1.5   Research Questions

      To guide the conduct of this research, the following questions

are raised:

   1. What is meant by the term fraud and forgeries?

   2. What are the various types of fraud in Nigerian banking

      industry?

   3. What are the causes of fraud on the Nigeria economy?

   4. What are the various method of fraud prevention?



1.6   Scope of the Study

      The scope of the study is to examine critically fraud

management in the Nigerian banking industry (2000-2008). The

study also covers nature of fraud, types, causes, management

control measures and effects of fraud on Nigerian economy.



1.7   Limitations of the Study

      The major problems encountered in carrying out this research

work are:




                                 -8-
1.    Due to annual upgrade of SPSS package, it took the

researcher a lot of time and effort to get the recent, compatible and

suitable version for the research work

2.    Negative attitude of the government officials in given out

needed data.

3.    Due to the hectic nature of CBN, NDIC officials, the

researcher have to pay several visits to these places which cost time

and money.

4.    Also,    some    information   were    being    coded   by   the

organisations’ which was not released to the researcher.

      However, effort has been made to ensure that this situation

does not hinder the completion and quality of the research work.



1.8   Study Plan

      This study will be presented in five chapters. The first chapter

is the introduction which includes background, statement of the

problem, aim and objectives, significance, research questions,

scope, limitations, study plan and definition of key terms.




                                  -9-
      The second chapter focuses on the review of related literature

on the meaning of fraud, management control measures on fraud,

types of fraud, causes of fraud, method of preventing frauds, current

fraud practices in Nigeria, cheque frauds, fraud control variables and

prudential guidelines for banks.

      Chapter three constitutes discussion on research methodology

that is, historical profile of Nigerian banking industry, research

hypotheses, data specification, method of data collection and

method of data analysis.

      Chapter four is made up of data presentation and analysis.

      Chapter    five   comprised      of   summary,   conclusion   and

recommendations.



1.9   Definition of Key Terms

1.    Financial Intermediaries: They are financial institutions that

intermediate between the surplus sector of the economy (household)

and the deficit sector (government, business enterprises) by

mobilizing the surplus sector to save part of their income that are not




                                   - 10 -
consumed and repackage it for lending to the deficit unit at a

considerable interest rate.

2.    Depositors: Someone who deposits money in a bank or

building society especially in a deposit account.

3.    Financial Institution: Banks, insurance companies, savings

and loans.

4.    Customer: Someone who uses the services of a business.

5.    Bank: Financial organization which keeps money in accounts

for its client, lends money and exchanges currency.

6.    Bankrupt: Someone who deposits money in a bank or

building society especially in a deposit account.

7.    Management: The skill or practice of controlling, directing or

planning something especially a commercial enterprises or activity.

8.    Money Transfer Fraud: They are money transfer service in

which funds are moved to or from a bank to a beneficiary account at

any banking point nationwide in accordance with the instructions

from the bank’s customer.




                                 - 11 -
9.    Letter of Credit: It’s a credit instrument given by a bank

whereby it undertakes to make payment or assures the beneficiary

that payment will be made subject to the term of the credit.

10.   Cheque Kiting Fraud: It is the building up a large apparent

balance in one or more bank account based on uncollected cheques

drawn against similar accounts in other sometimes distant banks.




                                - 12 -
                           CHAPTER TWO

                       LITERATURE REVIEW

2.1    Meaning of Fraud

       Various bodies such as, Chartered Institute of Bankers of

Nigeria (CIBN) as well as distinguished professional have at different

times written on detection, prevention, and control management of

bank fraud.

       According to Adewunmi 2000

              “fraud can be described as a conscious premeditated

              action of a person or group of person’s with the intention

              of altering the truth and or fact for selfish personal

              monetary gain”.

       It involves the use of deceit and trick and sometimes highly

intelligent and technical know-how. The action usually takes the form

of forgery, falsification of documents and authorizing signatures and

outright theft.

       Although, the existence of fraud in our banks is not an unusual

or unexpected phenomenon, it is worrying because of all the various

problems confronting the Nigerian banking industry today that, fraud


                                  - 13 -
is the most untraceable. The industry worries more about fraud

because of the rather obvious damaging consequences of the

institution. Also, fraud in banks always leads to loss of monies,

assets belonging to some people other than the banks. The loss

results in some cases reduced level of resources available for use in

the operation of the banks. In such situation, where fraud occurs in

wholesale sizes, the bank may be forced to close down as a result,

when a bank losses money and it is wound up, the customers lose

money, this will lead to loss of confidence and reduce patronage in

such bank.

      According to Iyiegbuniwe (1997), “fraud is hydra-headed

phenomenons that display its presence in different forms”.

      To him the classification of fraud by the method or instrument

of its execution is not appropriate. Frequent occurrence of fraud

ultimately distracts the attention of the management and leads to

increase running cost. Consequently, time and energy that would

have been spent in improving customer service would be expanded

on preventing fraud. Also, monies that would have gone into




                                - 14 -
services improvement activities would have been expanded in

setting fraud control procedures and systems.

      Moreover, the control of an identified special fraud seems to

give birth to another that is invariably more sophisticated and

complex – thus, each case can be variant if another and

undoubtedly an instructive study in human negative use of ingenuity

and endowment sources is search.

      Awe (2002) further described that

      “fraud is the intentional attention of records accompanied by

      the defalcation of asset in order to deceive certain group of

      people for the benefit of the perpetrator”.

      He   further      stressed   that      although   not   all   fraud   are

accompanied by the defalcation of asset but majority of fraud

perpetrated by low and middle level officers normally involve the

defalcation of asset.

      By extension, fraud will include embezzlement, theft or any

attempt to steal or unlawfully obtain misuse or harm the assets of the

bank. Fraud can be committed by employees, customers or others

operating independently or in conspiracy with others inside or


                                    - 15 -
outside the financial institution. It should also be noted that, fraud cut

across all sectors of the economy and the size of fraud perpetrated

in it may lead to the grounding of a business outfit if the size of fraud

is enormous. Prevention of fraud therefore, calls for putting in place

adequate internal controls among others.



2.2   Management Control Measures on Fraud

In view of the gravity of the effect of fraud on banks, management

has employed many measures aimed at controlling fraud. However,

fraud had continued to an upward trend despite the measures and

this has called their effectiveness to question.

      Auditors define management control measures as:

             “the whole system of controls, financial and otherwise,

             established by the management in order to carry on the

             business of company in as orderly manner, safeguard

             its assets and secure as possible the accuracy and

             reliability of the records”.

      Management control systems were classified into two major

groups i.e. internal checks and internal audit. Internal checks are the


                                   - 16 -
operational control which are built into the banking system to simplify

the processing of entries in order to act as insurance against

collusion.

      Internal audit otherwise known as inspection involves the

review of the operation and record undertaken within a business by

specifically assigned staff. The roles of the inspectorate department

are to serve as a watchdog on public funds to inspect the books of

account periodically to ensure that transactions are properly

recorded     and   books   are   regularly   balanced   to   investigate

malpractices like frauds, forgeries and theft of bank money or

property.

      To find a lasting solution to fraud prevention in bank, required

effort are necessary to see a reduction in the crime wave, there has

to be a collaborative effort by the bank, staff, the customers, other

banks and governments to articulate internal control and policy

formulation.




                                 - 17 -
2.3 Types of Fraud

   According to Bank Administration Institute (1989), the most

important and common types of fraud highlighted in fraud prevention

and detection series are:

   (I)    Advanced Fee Fraud “419”: This involves an agent

          approaching a bank, a company or an individual with an

          offer to access large funds at below market interest rate

          often for long term. The purported source of such funds is

          not specifically identified as the only way to have access to

          it is through the agent who must receive a fee or

          commission “in advance”. He disappears into and the

          facility never comes through. Any bank desperate for funds

          especially the distressed banks and banks needing huge

          funds to bid for foreign exchange can easily fall victim to

          this type of fraud.

   (II)   Account –Opening Fraud: This involves the deposit and

          subsequent cashing of fraudulent cheques. It usually starts

          when a person not known to the bank ask to open a




                                 - 18 -
        transaction account with false identification but unknown to

        the bank.

(III)   Money Transfer Fraud: Money transfer service are means

        of moving funds to or from bank to a beneficiary account at

        any banking point worldwide in accordance with the

        instructions from the banks customers. Some common

        means of money transfer are mail, telephone, over the

        counter, electronic process and telex. Fraudulent money

        transfer may result from a request created solely for the

        purpose of committing a fraud or the alternation of a

        genuine funds transfer; request can be altered by changing

        the beneficiary’s name or account number or changing the

        amount of the transfer.

(IV)    Clearing    Fraud:   Most          clearing   frauds   hinge   on

        suppression of an instrument so that the expiration of the

        clearing period applicable to the instrument, the collecting

        bank will give value as though the paying bank had

        confirmed the instrument good for payment; clearing

        cheques can also be substituted to enable the fraudster


                                  - 19 -
       divert the fund to a wrong beneficiary. Also, misrouting of

       clearing cheque can also assist fraudster to complete a

       clearing fraud. That is to say a local clearing item can be

       routed to an up country branch. In the process of re-routing

       the instrument to the proper branch, the delay entailed will

       give the collecting bank the impression that the paying had

       paid the instrument.

(V)    Money Laundering Fraud: This is a means to conceal the

       existence, source or use of illegal obtained money by

       converting the cash into untraceable transactions in banks.

       The cash is disguised to make the income appear

       legitimate. Banks should be advised to avoid handling such

       funds.

(VI)   Computer Fraud: Computer fraud can remain undetected

       for a long time. It can take the form of corruption of the

       programme or application packages and even breaking into

       the system through a remote sensor. Diskette can also be

       tampered with to gain access to unauthorized areas or




                              - 20 -
       even give credit to an account for which the funds were not

       originally intended.

(VII) Telex Fraud: Transfer of funds from one location to

       another can be effected through telex. The message

       though often coded can be altered to enable diversion of

       the funds to an account not originally intended.

(VIII) Cashier Fraud: This is a fraud perpetuated by cashier

       through the means of diverting customers’ cash for

       personal use. This usually happens when customers paid

       cash or when they want to withdraw cash from their

       accounts. On the process of receiving the cash, cashier

       remove some pieces out and pay the customers as

       complete wrappers.

(IX)   Suppression / Destruction of Debit Notes: This is a

       common type of fraud practice in banks. Bank staff raises

       debit notes from another sister’s branch to be paid at the

       branch where they or their friend works. When the debit

       notes gets to the branches in which they work or their

       friends’ branches, they get instruments (debit notes)


                              - 21 -
          suppressed      or     destroyed,   thus,   leaving   originating

          instrument unresponded to.



2.4 Causes of Fraud

Fraud does not emanate from nowhere but it is perpetrated by

people with motives.

       Causes of fraud in banks have been identified as:

    The Institutional factors

    The Environmental factors / societal factors.

       The Institutional factors are those able to internal environment

of the financial institutions.

       The Environmental / societal factor are those which result from

the influence of the environment / social on the banking industry.

                     Institutional Causes of Fraud

Various authors and professionals in the industry seem to be

unanimous in their identification of institutional causes of fraud.

These are:




                                    - 22 -
(I)     Volume of Work: The amount of work done by officials

        could be so heavy that frauds could easily pass undetected

        by such officials.

(II)    Nature of Services: Fraud may be caused where

        documents of value and liquid assets are exposed to an

        undisciplined staff or unauthorized persons for example,

        customers.

(III)   Banking Experience of Staff: Frauds in our banks occur

        with higher frequency among staff with little experience and

        knowledge in financial practice. The more experience and

        knowledgeable a staff, the less likelihood that frauds would

        pass such staff undetected, unless with active support of

        that staff.

(IV)    Number of Staff: Where a senior official supervises quite

        a large number of staff, there is a high likelihood that fraud

        could go undetected.

(V)     Poor Management: Banks with poor management record

        high incidence of all sorts of frauds than those with

        effective and efficient management team with unsullied


                               - 23 -
       character. Financial institution with poor management

       record   higher     cases     of    fraud   than    with    effective

       management.

(VI)   Poor Security Arrangement: In financial institution where

       security arrangement for valuable document or property

       are weak, poor and vulnerable, it is easy for fraudster to

       have their way without detection. Nigeria banks use bullion

       vans for conveying huge sum of money. The heavy

       reliance on cash has made banking a nightmare for many

       Nigerians. Efforts should be made to make Nigeria a

       cashless society.

(VII) Inadequate Infrastructure: Poor communication systems

       and power failure result to blacklog of unbalanced postings,

       congested office space e.t.c encourage the perpetration of

       fraud in banks.

(VIII) Delays    in      procuring        document:       Delays     create

       opportunities for hatching in bank and other financial

       institutions thus making prevention and detection difficult.




                               - 24 -
(IX)   Use of Sophisticated Accounting Machines: Where

       sophisticated accounting machines are in use and are

       manned by inadequately equipped staff, errors could arise

       and this lead to the production of unreliable record. In the

       heeds    of    dishonest     staffs,   sophisticated    accounting

       machines could be employed to deliberately omit entries,

       substitute improper calculation and posting, manipulate

       documents, substitute fictitious documents and later

       genuine ones. All of these are different ways of

       perpetrating frauds.

(X)    Lapses    in     the   management         control      system   of

       corporate customers: This is a classic example where

       frauds   could    be   externally      hatched   and     executed.

       Fraudulent staff in both financial institution and in the

       employment of corporate customers could take undue

       advantage of lapses observed in the management control

       system of corporate customers.

(XI)   Negligence by Customers:                Traditionally, it is the

       negligence on the part of customers that provides ample


                                  - 25 -
            opportunities to staff of financial institutions to perpetrate

            frauds. Negligence by customers take various forms

            consisting of errors that might have been genuine but

            which are open to abuse, distortions and defalcation by

            unscrupulous staff both within and outside the institution in

            the employment of customers.



Environmental / Societal Causes of Fraud

         These have been identified as follows:

  (I)       Personality    profile    of      dramatize   personae:    Most

            individuals with inordinate ambitions without qualm are

            prone to committing fraud. These kind of fraud committed

            by an individual bent on making money by hook or crook

            and to them the end justifies the means. They are usually

            unscrupulous and opportunistic.

  (II)      Societal   Value:    When         the   possession   of   wealth

            determines the reputation ascribed to a person, that society

            is bound to witness unnecessary competition for acquisition




                                     - 26 -
        of wealth. This no doubt will lead to some people using

        dubious means to get rich overnight.

(III)   Lack of effective Deterrent / Punishment: This is a moot

        point because it is argued in some quarters that, lack of

        effective deterrent such as heavy punishment could be a

        factor that contributes to the high perpetration of frauds in

        the banking industry.

(IV)    Fear of Negative Publicity: Many financial institutions fail

        to report fraud cases to the authorities. They believe that

        doing so will give unnecessary negative publicity to their

        institutions. This is not only a chance for fraudsters to

        thrive; it is great challenge to a researcher as regards data

        collection.

(V)     Unemployment and High level of Poverty in Nigeria:

        Nigeria is one of the richest economies in the Sub-Saharan

        Africa and indeed the world both in human and natural

        resources (oil) but 80% of the Nigerian youths especially

        University graduates are unemployed. Most of the

        politicians squirrel away the looted funds in foreign banks


                                - 27 -
          without   been   punished.       This   causes   capital   flight,

          unemployment, dearth in infrastructure, which is not

          particularly good for a developing country like Nigeria.

   (VI)   Slow and Tortuous Legal process: Delays in prosecution

          of fraud cases have a way of frustrating the parties to the

          case. A frustrated party can abandon the case midway,

          leading to miscarriage of justice, the delays can be in form

          of:

   -   Late reporting of cases to the police.

   -   Lack of specialized manpower for the investigation of fraud.

   -   Lawyers and prosecution witness absenting themselves from

       court.

   -   Undue delay in the investigation and charging of cases to

       court.



2.5 Methods of preventing Fraud

       It is nearly impossible to completely prevent frauds. In this our

increasingly materialistic and morally decaying society, fraud will

continue to occur. The attainable goal that bank management must


                                  - 28 -
seek is to minimize fraud. In doing this, management must seek and

use preventive rather than the curative approach.

          The following are possible ways of fraud prevention in banks.

   (I)       Banks staff should be properly screened to test their

             morality, trustworthiness, sincerity and fear of God before

             employed. Information about the staff should also be

             obtained from other sources.

   (II)      Understanding control system is part of the necessities for

             a manager.

   (III)     Particulars of intending account must be obtained and

             verified before any account can be opened.

   (IV)      Segregation    duties   and      rotation   of   staff   who   are

             contemplating to defraud the bank, the longer staff stays on

             a job the more proficient he is. The existence of this kind of

             situation in a bank is an evidence of poor management and

             it advertently encourages fraud.

   (V)       Unconcealed inter-branch accounts always serve as a

             cover for fraudulent entries. The need for effective

             reconciliation of inter-branch accounts cannot be over


                                     - 29 -
          emphasized. There is need to equip the reconciliation

          section of any bank with highly experienced and knowledge

          staff. Under no circumstances should the section be

          regarded as a dumping ground for discredited officers.

   (VI)   All payments instrument with huge amount should be

          referred to the issuing bank before payment. This should

          be so, whether or not code manages or tests are in order.

   (VII) Staff must be provided with equipment that is in good order

          to enable them perform their duties.

   (VIII) Reasonable incentives to staffs help to reduce the

          incidence of their involvement in fraud. Reward should also

          form part of bank policy to encourage staff and customers

          who have helped to frustrate fraud.



2.6   Current Fraud Practices in Nigeria

      The United State Secret Service and the department of state

commerce and justice have claimed that Nigerian criminal

enterprises are organized and active in at least 60 countries. There




                                 - 30 -
are three broad classes of financial crimes now prevalent in the

Nigerian banking industry and these are:

Fund Transfer Fraud: There have been increasing cases of fraud

transfer in Nigeria, fraudster have continued to penetrate frauds

running into several millions of naira. Specific types of money

transfer fraud include: Money laundering and advance fee (419)

fraud, where fraudsters get funds transferred from unsuspecting

parties off shores to themselves through Nigerian banks. Increased

sophistication in telephone transfer and inadequate government

regulation has facilitated thin kind of fraud.

       United State entrepreneurs had fallen prey to Nigerians,

advance fee fraud loosing millions of dollars and their lives

endangered when they had been persuaded by criminals to travel to

Nigeria to complete bogus transactions – Advance fee fraud in

Nigeria takes five major forms:

   -   Disbursement of money from wills.

   -   Contract fraud.

   -   Purchase of real estate.

   -   Conversion of hard currency.


                                  - 31 -
   -   Transfer of crude oil at price below market price.

       The goal of the Sean artist is to delude the target of their

schemes into believing that the victim is being drawn into a very

lucrative arrangement. Doubts or questions from the target victims

about the arrangement are allayed by the use of forged or false

letter of credit payment schedule and bankdrafts.



Transaction Account Fraud: Transaction account fraud involves

opening of a transaction account (current or savings account) with

the purpose of deposit and subsequent withdrawal of counterfeited

or stolen financial instrument, especially cheques (including dividend

warrant) and fund transfer.

       These types of fraud usually exist along with funds transfer

fraud. The fraudsters open the account deposits into it, withdraw the

fund as it clears and then abandon the account.

Fraudulent Lending: Almost all forms of fraudulent lending have

active participation, negligence and corporation of the bank

executives and staffs. Most of the Nigerian banks’ bad debt account

can be traced to fraudulent lending to fictitious or ghost borrows.


                                 - 32 -
Customers with inadequate, overvalue or imperfect collateral,

granting of credit to customers that are agents to the loan officers

among others.



2.7                       Cheque Frauds

      There are many ways in which criminals’ uses cheques to

defraud banks, companies and individuals. The common cheque

frauds involve cheque that are stolen, forged, counterfeited or

altered in various ways – often by raising the naira amount of a

legitimate cheque or by changing the payee.

      Criminal often – open current or demand accounts for the

express purpose of committing fraud. They use bogus identification

documents and disguise to conceal their true identity and to make

investigation of the fraud more difficult. “Cheque kitting and by others

as kite-flying or cross-firing of cheques is the building up of large

apparent balances in one or more bank accounts based on

uncollected cheque drawn against similar accounts in other

sometimes distant banks”.




                                 - 33 -
         Kite-flying can be simple or vary complex depending on the

number of banks and accounts involved. The naira amount of the

kite can remain steady on continually increase. Cheque kitting fraud

is an old fraud problem, one that will exist as long as bank willing to

pay against uncollected funds.

               Methods of Preventing Cheque Fraud

         The following are methods of preventing cheque fraud.

I.       Internal control: Banks should implement internal control to

reduce the risk of cheque fraud.

Some typical controls include:

     -   Permanent signatories cards for each account.

     -   Business accounts with all appropriate documentation on file.

     -   Mail deposits handled by persons independent of account

         opening and statement preparation responsibilities.

     -   Special protection for dormant account.

     -   Customer complaints and reconcilement differences directed

         to person independent of account opening and cashiers.

     -   Changes in account information should be authorized by the

         customer in writing accomplished in a manner in which


                                   - 34 -
           guarantee that the customer is the person requesting the

           change.

       -   Various separations of duty controls to ensure that no person

           in the bank, acting alone can commit cheque fraud.

Ii         Physical Control: Physical controls also help to prevent

some kinds of cheque fraud. Cheque stocked should be secured

under dual control in locked containers, safe and vaults. The use of

stanchous and ropes to create a chaser queue lines makes it more

difficult for the criminals to seek out inexperience cashier or certain

who are accomplices.

           Bank   needs    secure       procedures   for      the   collection,

transportation,      retention   and     secure   disposal,    shredding    or

destruction of trash, which may contain sensitive information.

III.       Safe Cheque Writing: In preparing business or personal

cheque, one must make forgery more difficult, typewriter should be

used or ink pens.

           Writers should begin writing the payee name and the amount

in naira in letters and numbers, words or numbers being added. A




                                       - 35 -
line should be drawn through space to the right of the numbers

cancelled; voided or unused cheque should be safely stored.

IV.   Counterfeit Cheques: Counterfeit cheque produced by colour

copier or photo offset printing machines are often cut from large

sheets of papers and lack any perforated edges. Two or more

cheques with the same cheque sequence numbers and other similar

characteristics should be considered suspicious.

V.    Transaction Deserving Special Caution: Some transactions

deserve special caution because many cheque frauds are committed

in similar circumstances. Deposit using counter deposit slips rather

than deposit slip taken from the cheque book, new account

transactions and split deposit cash should be handled with great

caution.

VI.   Alterations: Person accepting cheques should be vigilant for

any indications of erasures, ink eradication or other alternations

including additions to the naira amount in number or words.

      Also, ensure that the amount written in numbers agree with

the amount written in words. The amount written in words is the

logically recognized numbers.


                                - 36 -
2.8     Fraud Control Variables

        Banks should beware of activities not consistent with the

customers business in order to prevent fraudulent act.

        The provisions of Nigerian Criminal code as it relates to fraud

and forgeries includes the following:

(i)     The Law Section 438 of the Nigerian Criminal Code states

that:

              “any person who being a clerk or servant does any of

              the following acts with intent to defraud, destroy, alters,

              mutilate of falsified any book, document valuable

              security or account which belongs to or is in the

              possession of his employer who has been received by

              him on account of his employer, or any entry in any

              such book, document or account or is privy to such act

              or makes, or is privy to omitting any material particularly

              from any such book, document or account is guilty or

              felon and is liable to imprisonment for seven years. If he

              makes or is privy to making any false entry in such

              book, document or account”.


                                  - 37 -
           In any of these cases, it is essential for the prosecution to

state and prove vividly that:

    The accused was a clerk or servant of the bank at the material

           time.

    The book or document or account was that of his employer

           (bank) and not that of another person or accused and the

    Accused intent to defraud.

   (ii)       Section 439 states that:

                    “Any person who being an officer charged with the

                    receipt, custody or management of any part of public

                    revenue or property knowingly furnishes any false

                    statement or return on any money or property

                    received by him or entrusted to his care, or of any

                    balance of money or property, in his possession or

                    under his control, is guilty of a misdemeanour and is

                    liable to imprisonment for two years”.

   (iii)      Section 435 stipulates that:

                    “any person who being a director or officer of a

                    corporation or company receives or possess himself


                                     - 38 -
                as such of any of the property of the corporation or

                company otherwise than in payment of a just debt or

                demand and with intent to defraud, omits either to

                make a full and true entry thereof in the books and

                accounts of the corporation or company or to cause

                or direct such an entry to be made therein as guilty

                of a felony and is liable to imprisonment for seven (7)

                years”.

       The offender cannot be arrested without warrant.

(iv)      Section 467 states that:

             “any person who forgoes any document, writing or seal

             is guilty of an offence which unless otherwise is stated

             as a felony and is liable, if no other punishment is

             provided to imprisonment for three (3) years”.

(v)       Section 472 stipulates that:

             “any person who with intention to defraud, obliterates,

             add or alter the crossing in a cheque or knowingly alters

             a crossed cheque, the crossing on which has been




                                 - 39 -
                obliterated, added to or altered is guilty of a felony and

                is liable to imprisonment for seven (7) years”.

   (vi)      Section 475 states that:

                “any person who without lawful authority or excuse the

                proof of which lies on him, purchases or receives from

                any person or has in his possession, a forged banknote,

                whether filled up in blank knowing it to be forged is

                guilty of a felony and is liable to imprisonment for seven

                (7) years”.



                         Bankers Code of Conduct

          Presently in Nigeria, there is no criminal code that relates to

code of conduct for bankers but administrative norms and flaws

serve the same purpose which can be alternatively called “Banking

ethics”.

    Members of staff are forbidden to receive bribe and gifts as

          inducement to act or refrain from acting in the proper

          performance of their duties. Obstruction of this rule shall lead

          to instant dismissal.


                                    - 40 -
 Members of staff are not allowed to operate any account other

   than the salary account with their banks. Violation of this rule

   i.e. if the management discover that a staff maintain an

   account elsewhere other than his salary account with the

   bank, he (staff) will be served with termination of appointment

   letter.

 Members of staff are forbidden to engage in outside business

   that will conflict his interest with the job of the bank. Violation

   of this will lead to immediate dismissal.

 Members of staff are forbidden to divulge any information

   related to the bank to the outside world. Failure to abide by the

   rules will earn staff concerned a dismissal.

 Members      of   staff     are   not   allowed   to   stand   in   as

   surety/guarantor for anybody. Contravention of this rule will

   lead to staff dismissal.

 All staff should always display gentlemanly behaviour in and

   outside the bank. Any report of ungentlemanly conduct or

   involvement in public brawl, drunkenness, prosecution for




                                - 41 -
      other than health or traffic offences would be treated as

      breach of conduct and as such be disciplined accordingly.

    Any staff who knowingly about a fraud or seeing it being

      committed to who is in a position to know or see or be aware

      to the perpetration or an act of gross violation of the banks

      operational rules and regulation, but remain quiet or fails to

      report same or made an effort to prevent it, he is as guilty as

      an aider, and a better of such fraud or malpractice. Such staff

      shall be given the same or similar punishment as the banks

      gives to the actual offender. This may include dismissal.



      Without any doubt, the requirement of the statement of

accounting standard (S.A.S. Part I) to be issued by the Nigerian

Accounting Standard Board (NASB) in the near future, all licensed

banks shall be required to adhere to the guidelines enunciated in

this circular for reviewing and reporting their performance, with

immediate effect.

      In view of the international nature of banking, the guidelines

are based on practices endorsed by reputable international financial


                                - 42 -
institutions and regulatory authorities. The guidelines should be

regarded as minimum requirements and banks, which already have

more stringent policies and practices in place are encouraged to

continue with them. The guidelines are as contained in the banks

and other financial institutions decree no 254.



2.9   Prudential Guidelines for Banks

      Without any doubt, the requirement of the statement of

accounting standard (S.A.S. Part I) to be issued by the Nigerian

Accounting Standard Board (NASB) in the near future, all licensed

banks shall be required to adhere to the guidelines enunciated in

this circular for reviewing and reporting their performance, with

immediate effect.

      In view of the international nature of banking, the guidelines

are based on practices endorsed by reputable international financial

institutions and regulatory authorities. The guidelines should be

regarded as minimum requirements and banks, which already have

more stringent policies and practices in place are encouraged to




                                 - 43 -
continue with them. The guidelines are as contained in the banks

and other financial institutions decree no 254.




                                 - 44 -
                        CHAPTER THREE

                  RESEARCH METHODOLOGY

3.1   Historical Profile of Nigerian Banking Industry

      The first financial institution to emerge on the financial

landscape of the country are the commercial bank dating back to

1897, when the African Banking Corporation was established. The

bank later wound up its operation that same year. Sir Alfred Jones,

(A British Shop Magnate, whose fleet were plying Liverpool and the

West Coast of Africa) and government joint effort, they paved way to

the establishment of another bank known as the British Bank for

West Africa (BBWA) in 1893 and which started operation in 1894.

The Bank handled the import and export of mint coins until 1959

when the Central Bank of Nigeria was established. It later became

First Bank of Nigeria in 1977 to reflect the fact that it was the

“pioneer” bank in Nigeria.

      The British Bank for West Africa (BBWA) maintained the

banking monopoly in Nigeria until 1925 when Barclays Bank (DCO)

was established. It also later became known as Union Bank of

Nigeria.


                               - 45 -
      These two banks which were oversee as private enterprise

institutions dominated the commercial banking in Nigeria. Another

foreign bank, the United Bank of Africa Limited was established

initially as the British and French Bank in 1947 and took its present

name in 1961.

      In 1933, the National Bank of Nigeria was established with the

unique distinction of being the first indigenous bank to survive before

it finally merged with others like the Agbonmade Bank Limited now

Wema Bank Plc established in 1945, and the African Commercial

Bank established in 1947.

      The period of 1927 to 1952, recorded a boom in the

establishment of indigenous banks, which was followed by a burst as

twenty-two of the twenty-five indigenous banks failed within the

period. The bank failure of this era resulted from the absence of

banking   regulation,   inadequate        capital,   paucity   of   qualified

personnel, poor credit administration. The need thus, arose for a

framework for the regulation and supervision of banking business in

Nigeria. That gave rise to the enactment of the Banking ordinance of




                                 - 46 -
1952 which was the first attempt to regulate the business of banking

in Nigeria.

      The ordinance provided that an indigenous bank must have

nominal capital of N50,000.00 out of which N25,000.00 should have

been paid up while an expatriate bank must have a nominal capital

of two hundred thousand naira (N200,000.00).

      Most of the banks operating in Nigeria at this period were

incorporated abroad, and only came to do business in Nigeria and

as such, were basically foreign companies, until the passing of the

Banking Act of 1969, the minimum paid up capital of commercial

banks was raised from two hundred thousand naira (N200,000.00) in

1955 to One million, five hundred thousand naira (N1.5m) for foreign

banks. But for the indigenous banks, the capital was increased to

Six hundred thousand naira (N600,000.00). Banks were also asked

to maintain a capital deposit ratio of 10% to 30%.

      The     indigenous   effort    of      1972   and   1977   gave   the

indigenization participation in the banking sector 60% and 40%

foreign participation in Nigeria. The banking industry during this

period was characterized by minimal competition, high regulation by


                                    - 47 -
government and poor capitalization in terms of policy; it was a period

of relative monetary restraint.

        However, in the mid 80’s the banking industry witnessed a

significant transformation both in terms of number and product

creativity and the level of operation which was a result of the

economic reform embodied in the Structural Adjustment Programme

(SAP) in 1986. The reforms brought about the removal of various

administrative controls and the progressive move towards a market-

oriented economy. In terms of growth in the number of banks, the

commercial banks stood at twenty-nine, merchant banks twelve,

while five development banks were operating during that period.

This era also brought about the enhancement of the regulatory and

supervisory bodies, which brought about the promulgation of the

CBN Act of 1991 which amended and repealed the Act of 1958, and

Banks and other Financial Institutions Act of 1991, which also

amended and repealed the Banking Act of 1969.

        The financial sector witnessed the boom and bust cycle in the

mid 1990’s due to the growth in number of banks during that period

which    was    characterized     by   financial   liberalization   in   the


                                   - 48 -
deregulation of interest rate and the loosening of credit allocation

quotas. Consequently, there came the emergence of massive entry

of new banks and proliferation of banking and financial institutions

as credit to the private sector and deposits declined and the number

of players increased far beyond what could be effectively managed

by the CBN. Economic downturn and political instability brought the

boom to a halt in 1992 with a major banking crisis crippling the

financial sector. The number of banks adjudged as technically

insolvent grew from eight in 1990 to twenty-eight in 1993 and forty-

five by the end if 1994. As at June 1995, the number of distressed

banks had risen to about fifty-seven. Factors adduced for the

distress included inability of banks to honour their debt obligation,

mismatch of priorities e.t.c.

      The regulatory authorities (CBN and NDIC) had to come into

salvage the situation through the process of restructuring some of

the banks, while the chronic ones were eventually liquidated

overtime.

      With the introduction of Universal Banking in 2001, the

number of banks stood at Ninety (90). However, in 2003 and 2004,


                                - 49 -
the number of banks fell to 89 and 87 respectively. The

recapitalization and consolidation policy of the Central Bank

introduced in July 2004, which required bank licensed in Nigeria to

increase their paid up capital to a minimum of N25 billion on or

before December 31, 2005 has brought about the shrinking of the

number of banks from 87 to 25.



3.2   Research Hypotheses

      In the course of this research work, the following hypotheses

were tested:

Hypothesis I

Ho: Fraud occurrence in banks has no impact on the expected loss

of banks.

Hi: Fraud occurrence in banks has impact on the expected loss of

banks.

(Yt = ao + bI XI + Ut)

Where; Yt = Expected loss of banks

      ao = Intercept (the expected loss when there is no fraud

      occurrence)


                                 - 50 -
      bI = The rate of expected loss accounted for by the amount of

      fraud occurrence (co-efficient)

      XI = Fraud occurrence

      Ut = Error term (The amount of expected loss accounted for by

      variables not included in the model)



Hypothesis II

Ho: Staff involvement in fraud and fraud occurrences are not

determinant of the amount frauded in banks.

Hi: Staff involvement in fraud and fraud occurrences are determinant

of the amount frauded in banks.

Where: Yt = ao + bI XI + b2 X2 + Ut

      Yt = Amount frauded

      ao = Intercept (the amount)

      bI – b2 = (co-efficient)

      XI = Staff involvement in fraud.

      X2 = Fraud occurrence

Appriori Expectations;

Hypothesis I:


                                  - 51 -
If 0 > bI < 0; Accept Null hypothesis and Reject Alternate Hypothesis

If 0 < bI > 0; Reject Null hypothesis and Accept Alternate Hypothesis



Hypothesis II:

If 0 > bI & b2 < 0; Accept Null hypothesis and Reject Alternate

Hypothesis

If 0 < bI & b2 > 0; Reject Null hypothesis and Accept Alternate

Hypothesis.



3.3   Data Specification

      Data specification entails the obtaining of data on the year,

total amount involved, total fraud cases, total expected loss and staff

involvements in the Nigerian banking industry.



3.4   Method of Data Collection

      In carrying out this research work, the data used were

obtained from secondary sources, which comprises of CBN Bullion,

NDIC annual statement of account, principal textbooks on book-




                                 - 52 -
keeping, government publications and report, newspaper publication

and reports, internets, journals, decrees and acts.



3.5   Method of Data Analysis

      By virtue of the type and nature of data required for this study

and the way the hypothesis is formulated, regression analysis would

be use in testing the hypotheses using the SPSS computer package.




                                 - 53 -
                           CHAPTER FOUR

            DATA PRESENTATION AND ANALYSIS

4.1 Total amount involved in Fraud and Forgeries

Year   Total       %       Total       %       Total %         Staff         %
       amount              expected            fraud
       involved            loss                cases           Involvement
       (N’m)               (N’m)
2000    2,857.11   2.24     1,080.57   3.04    403     3.99        493       19.61


2001   11,243.94   8.85     906.30     2.55    943     9.29        152       6.04

2002   12,919.55   10.16   1,299.69    3.65    796     7.84            85    3.38


2003    9,383.67   7.38     857.46     2.41    850     8.37        106       4.21

2004   11,754.00   9.24    2,610.00    7.34    1,175   11.57       383       15.23


2005   10,606.18   8.34    5,602.05    15.76   1,229   12.10       378       15.03


2006    4,832.17   3.801   2,768.67    7.79    1,193   11.75       331       13.16

2007   10,005.81   7.871   2,870.85    8.07    1,553   15.30       273       10.85


2008   535,22.86   42.10   17,543.09   49.36   2,007   19.77       313       12.45

Total 127,119.29 100.00 35538.68 100.00 10149 100.00               2514      100.00


SOURCE: NDIC BANK RETURNS (2000 – 2008)




                                  - 54 -
      As shown in 4.1, there was a total of N2,857.11 billion involve

in fraud and forgeries in year 2000, thus accounting for about 2.24

percent, compared with the total amount involved in 2001 which is

N11,243.94 and a percentage of 8.85, representing an increase

compared to the previous year.

      In 2002, the total amount involved in fraud and forgeries

decreased from N12,919.55 billion to N9.383 billion in 2003. The

percentage decreased from 10.16 percent in 2002 to 7.38 percent in

2003. In 2004, the total amount involved in fraud and forgeries was

about N11.75 billion (that is N9.6 billion, US$15.6 billion, GBP

46,397.40 and Euro 223,728.70) with 9.24 percent, compared with

the total amount involved in fraud and forgeries which is

N10.61billion (that is N10.4 billion, US$ 1.4 million, GBP 35,840 and

Euro 116,310) in the year 2005 with 8.34 percent.

      In the year 2006, the total amount involved in fraud and

forgeries was N4.832 billion (that is N4.6 billion, US$1.8 million, GBP

14,399.7) compared about N10.01 billion in the year 2007 with

percentage of 3.80 and 7.89 respectively representing an increase in

year 2007 compare to the previous year. Also in year 2008, the total


                                 - 55 -
amount involved in fraud and forgeries was N53.0 billion with a

percentage of 42 percent.



4.2   Total Expected Loss in Fraud and Forgeries

      As shown in 4.1, the expected loss in 2000 was estimated at

N1,080.57 billion with 3.04 percent, compared to about N906.30

billion in 2001 with 2.25 percent.

      Similarly, the expected loss on fraud and forgeries was

estimated at N1,299.69 billion in 2002 and N857.46 million as at

December 2003 representing a decrease from 3.65 percent to 2.41

percent.

      The expected loss in 2004 was N2.61 billion (foreign

currencies for 2004 and 2005 were converted to the domestic

currency using exchange rate at December 2004 respectively,

compared to about N5.61 billion in 2005 (that is N5.5billion,

US$728,346.96, GBP 30,085 and Euro 10,255) with a percentage of

7.34 and 15.76 depicting an increase in 2005 compared to the

previous year.




                                 - 56 -
      Also the expected loss amounted to N2.768 billion (that is

N2.6billion, US$1.3million and GBP 14,399.7) in year 2006,

compared to expected loss of N2,870 billion in year 2007 and N17

billion in year 2008, representing an increase of 49 percent

compared to the previous two years which is 8.07, 7.79 respectively.



4.3   Total Cases in Fraud and Forgeries

      As shown in 4.1, there was a total of 403 reported cases on

fraud compared to 943 reported cases in 2001, showing an increase

from 3.97 to 9.29 percent.

      Reported cases of fraud increased significantly from 796 in

2002 to 850 in 2003 depicting about 6.8% increase. There was a

total of 1,229 reported cases of frauds and forgeries in 2005 while

that of 2005 was 1,175 with a percentage of 12.10 and 11.57

respectively showing a slight increase from 2004 to 2005.

      Reported cases of fraud in 2006 was 1,193 compared to 1,553

in 2007 and 2,007 in 2008 representing an increase in fraud cases in

the year 2008 compared to the previous years with a percentage of

11.75, 15.30 and 19.77 respectively.


                                - 57 -
4.4   Staff Involvement in Fraud and Forgeries

      As shown in 4.1, a total of 493 staffs of banks were reported to

be involve in frauds and forgeries in 2000 while in 2001, a total of

152 staff were also involve in fraud and forgeries with a percentage

of 19 and 6.04 percent. This shows there was a decrease in staff

involvement in fraud in the year 2001 compared to 2000.

      In 2002, a total of 85 staffs were involved in fraud and

forgeries. In 2003, a total of 106 staff were reported to be involve in

fraud and forgeries, an increase of about 24.7% when compared

with the previous year level, this means that higher number of staff

perpetrated frauds and forgeries during this period.

      A total of 383 number of staff were reported to be involved in

frauds and forgeries in year 2004 and 378 were involved in year

2005 and in 331 staffs in year 2006, depicting a decrease of about

14.19% when compared with the previous year’s figure of 378 and a

decrease of 13.85 percentage point relative to the 2005 level.

A total of 273 staff of banks were reported to be involved in frauds

and forgeries in 2007, while in 2008 a total of 313 staff were involved




                                 - 58 -
depicting an increase of about 14.65% when compared with the

previous year figure of 273.



4.5   Test of Hypotheses

Hypothesis I:

Ho: Fraud occurrence in banks has no impact on the expected loss

of banks.

Hi: Fraud occurrence in banks has impact on the expected loss of

banks.

Apriori Expectation:

If 0 > bI < 0; Accept null hypothesis and Reject alternate hypothesis.

If 0 < bI > 0; Reject null hypothesis and Accept alternate hypothesis.

Ordinary Least Square Regression Result (2000-2008)

      From the model summary table, it is established that 65% of

the variation in total expected loss is accounted for by the variation

in total fraud cases and this indicates that the predictive power of the

co-efficient is high and efficient.

      From the ANOVA table, the F. Statistic (13.089) significant at

0.9% level of significance which is greater than the table value of


                                      - 59 -
(3.55) at 5% level of significance. It implies that there is a linear

relationship between total expected loss and total fraud cases

(occurrence).

       Examining the co-efficient table of the result, it is present that

the T-Test of XI (total fraud cases) is 3.618 which is greater than the

table value of T-statistics of 2.306. Therefore, we reject the null

hypothesis and accept the alternate hypothesis that, there exists the

impact of total fraud cases (occurrence) on XI (total fraud cases)

2.559 which is greater than zero, reject the null hypothesis and

accept the alternate hypothesis that there exists the impact of total

fraud cases on the total expected loss, and this is statistically

significant.




                                  - 60 -
- 61 -
- 62 -
Hypothesis II:

Ho: Staff involvements in fraud and fraud occurrence are not

determinant of the amount frauded in banks.

Hi: Staff involvement in fraud and fraud occurrence are determinant

of the amount frauded in banks.

Apriori Expectation:

If 0 > bI & b2 < 0: Accept Null hypothesis and Reject Alternate

hypothesis.

If 0 < bI & b2 > 0: Reject Null hypothesis and Accept Alternate

hypothesis.

The result is a regression through the origin (no intercept) model. R

square measures the proportion of the variability in the dependent

variable about the origin explained by the regression. This method is

adopted by the researcher, under the assumption that, it is baseless

to say an amount is reported to be lost to fraud and forgeries where

there is no fraud case and no staff involvement in fraud reported.

      From the table of model summary, it is established that 76% of

the variation in the total amount frauded in bank is accounted for by




                                  - 63 -
the variation in the total staff involvement in fraud and total fraud

cases.

      The Durbin Watson statistics (DW=0.797) has within the

boundary of the theoretical Durbin-Watson test which show that

0.797 is less than 2, and by implication there is a serial auto-

correlation between the dependent variable (Yt) and explanatory

variable (XI and X2).

      From the ANOVA table, the F-statistics (11.012) which is

greater than the table value of 4.74 at 5% level of significance which

means that there is linear relationship between the dependent

variable (Y) and the explanatory variables (XI and X2).

      The T-Test shows that the value of t-calculated of XI (total

fraud cases) is 2.319 which is greater than the table value of 2.262.

Therefore, we accept the alternate hypothesis and reject the null

hypothesis. We statistically have confidence that staff involvements

in frauds and fraud cases are the determinant of frauds and

forgeries in banks. Further still, since bI and b2 are greater than zero,

based on the Apriori expectation, we will then reject the null

hypothesis   and    accept    the     alternate   hypothesis   that   staff


                                    - 64 -
involvements in fraud and forgeries are determinant of fraud in

banks.

      In conclusion, one would strongly agree that fraud occurrence

in banks has impact on the expected loss of banks and management

should try to reduce the occurrence of fraud in the banking industry.




                                - 65 -
                            CHAPTER FIVE

      SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1      Summary

         The banking sector has a crucial role to play in the economic

development of any country. It is in recognition of this fact that the

government deregulated the financial institutions system resulting in

the establishment of more banks in the country.

         There has been an upsurge of banking of banking and other

financial institution by over 400% in the last 8 years. The sudden

increase of banking and other financial institution over-ran the

available skilled human resources in banking and finance to ensure

proper management and control. Few experienced bankers were so

thinly spread that it has become virtually impossible to closely

supervise the activities of staff.

         Also, most of the banks were so much in haste to make profit

that enough attention has not been paid to putting in place a proper

and effective control system that could minimize the incidence of

fraud.




                                     - 66 -
      In the course of this research, data were collected from

secondary sources to achieve the aim of the research, data collected

were, CBN Bullion, NDIC Annual Statement of Account, Government

publications   and   reports,   principal   textbooks   on   Accounts,

Newspapers publication and journals. It was discovered from the

data collected, that today, the number of non-violent crimes (both

discovered and those yet to be discovered) by way of frauds in most

of our banks are increasing at enormously high rate.

      It was noted that fraud affects the bank mostly and can erode

the assets of any bank or organization if it is not controlled or

minimized.

      Frauds are dangerous to the image of banks or organization.

However, in recent times, the rate and frequency at which they occur

have been a cause of great concern to management of all banks in

Nigeria.




                                 - 67 -
5.2   Conclusion

      In   view    of   the   foregoing    presentation,     analysis   and

interpretation, it can be observed that fraud had and is still having

very far reaching repercussions on the banking sector and that now

is the time to device ways and means fro the effective investigation

and trail of fraudsters. It was discovered from the data collected that

fraudulent act can be minimized, if all control system, inspection and

supervision are put in place. It is therefore, necessary to examine

ways and means by which the perpetration of fraud could be

managed.

      Equally, the public no longer believe that legal system as now

constituted is capable of bringing the perpetrators of serious fraud

expeditiously to book; it has said that the present system of

investigation   trial   and   conviction   of   fraudsters     is   archaic,

cumbersome and unreliable.

      The government, banking undertakings as well as industries

have not yet been able to devise system that cannot be broken by

two or more people getting together to commit fraud, especially




                                  - 68 -
when this is done by people within the organization working in

collusion with someone outside.

      As stated earlier, there is no full proof method to detect or

prevent fraud effectively, we can only hope that this research work

would help in increasing awareness of bank personnel of the

possibilities of fraud that can be perpetrated and to intensify to their

effort in reducing the fraud perpetrated and to minimize it in our

banks.



5.3   Recommendations

      Since fraud does not just happen but are perpetrated by

people with reason or motivation, there is need for the players in the

industry (Bank management and the regulatory bodies) to set up

and implement an effective and efficient control system that will

adequately monitor the daily activities of the industry without leaving

any loophole, appropriate personnel policies and practices should be

in place since, fraud are perpetrated by people of moral decadence

and not ghosts.




                                  - 69 -
      The scope of this research work has been limited to banking

industry, in view of this; the result of this research work may not

necessarily fit into other industries in Nigeria.

      However, measures and strategies on fraud are not

exhaustive and should be dynamic based on the situation and

circumstances of their causes and characteristics, without any doubt,

the need to curb and reduce financial crimes cannot be

overemphasised. It is therefore recommended that banks should co-

operate with the government, international agencies and other

regulatory bodies to ensure that this dangerous plague is eliminated

from the global financial system. It is believed that this study is

comprehensive enough and provides a firm basis for further studies

on this subject matter so that more assurance capable of universal

generalisation can be obtained.

      Also, it has been discovered that fraud occurrence in banks

has impact on the expected loss of banks as well as staff

involvement in fraud and fraud occurrence are determinant of the

amount frauded in banks. Despite this situation, it was discovered

that various measure undertaken by banks in particular are not


                                   - 70 -
enough to reduce the millions and billions of naira being eroded by

this fraudulent practice.

      It is believed that when the first issue raises is research into,

the need for the banking industries to formulate and implement or

provide efficient, prompt and courteous services to its numerous

customers will be considered. This will also go to a reasonable

extent in reducing the distortions in the economy.

      This will also address things like:

                  (a)       Computer programs and operation in banks.

                  (b)       Development        and     perpetration   of   audit

                            programs.

                  (c)       Micro-magnetic           inks    and      character

                            recognition cheque.

                  (d)       Enforcement of bank security and other

                            control measures, human aspect of bank

                            frauds.

      Without iota of doubt, if the above recommendations are

adhered to, fraud can be effectively managed in Nigerian banking

industry.


                                      - 71 -
                            REFERENCES

Abass .D. Subair Bank Fraud caused by CBN Bankers, Nigeria

      Tribune 22nd September, 2002.

Adekanye, F. (1986): “Fraud in banking transactions” the Nigeria

      Banker. Vol. 6 No. 1, Nigerian Institute of Bankers, Lagos.

Andrew, D. C., Akpoyomare, O. (1996): Internal Auditing, The Use of

      Management control strategies in detection and prevention of

      frauds Nigeria Management Review. Vol. 10 No. 1 Pg. 687-

      692.

Asukwo .E. Peter (1998): Banks fraud, Nigeria Financial Review,

      Vol. 7, No 3 Pg. 25 – 31

CAMD (1990): Companies and Allied Matters Decree 1990,

      Published by the Federal Government of Nigeria.

Elechi, A. O. (1990): Fraud and Forgeries in Banks causes, types

      and prevention. Presented at the National Seminar in bank

      and it organized by ICAN in Lagos.

Fagbemi, O. A. (1986): Fraud in Banks. “The law and legal process,

      frauds and banks. Nigerian Institution of Bankers, Landmark

      Publication, Lagos.


                                 - 72 -
      for banks and financial institutions, The Nigeria Banker, July -

      December 1994.

Imala, O. I. (2004): The experience of Banking Supervision in

      Financial Sector Surveillance, CBN Bullion.

NDIC Annual Report and Statement of Account on Fraud and

      Forgeries 2000 – 2008.

NDIC: Nigeria Deposit Insurance Corporation “Annual Report and

      Statement of Account”. Various Issues, Lagos, Nigeria.

Nwankwo, G. O. (1990): Preventional Regulation of Banking

      (University of Lagos Press), Lagos.

Olufidipe, E. O. (1994): Fraud in Nigeria Economy and its implication

Oxford University: Oxford Advanced Learner’s Dictionary.

Wale-Awe, O. I. (2002): The theory and practice of Auditing (2002)

      Lecturer, Department of Accounting, University of Ado-Ekiti,

      Gilgal Publications.




                                - 73 -

				
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