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					                                  TOPIC:-
AUDITORS AND FRAUD PREVENTION IN COMMERCIAL BANK
                 (A CASE STUDY OF FIRST BANK OF NIGERIA PLC )

                           DONE BY GROUP 93
                    MATRIC NO: - 06/BAF/5191 - 5193


CHAPTER ONE
INTRODUCTION
      In the olden days, men started his transaction with his fellowmen,
with the method of “trade by barter” thus, the need for record keeping or
auditing did not arise
      However, the advent of money and the consequent increase in the
number of transaction made keeping of records and account and their audit
unavoidable.
      In those days, book keepers read the account to the auditor with who
head them and testified to their correction or otherwise, hence the word
auditors originated from the Latin word Audire which means to hear later on
the complexity of modern business transaction necessities the voluminous
account keeping and ultimately the scientific Examination of account now
called modern auditing.
DEFINITION OF AUDIT
      An audit is defined as an independent, examination of an expression
of opinion on the financial statement of an enterprise by an appointed
auditor in pursuance of that appointment and in accordance with any
relevant statutory obligation.
AN AUDITOR
         This is an individual or firm carrying out audit of an enterprise and the
partners of such an individual or in such firm where appropriate, the term
auditor embrace staff acting within delegated authority.
AUDITING
         This is a process carried out by a qualified person (Auditor ) where by
the books of account are subjected to scruoting in such detail as it will
enable an auditor to express opinion on their truth accuracy and fairness.
OBJECTIVES OF AUDITING
         The objective of an audit can be divided into two namely primary and
secondary objective.
         The primary aim of an audit is to produce a report by the auditor of
his opinion of the truth and fairness of financial statement so that any person
reading and using them may have belief in them, in these case of statutory
audit, the auditor must comply with all the details placed on him by the
relevant statue.
SECONDARY OBJECTIVE
         An auditor has secondary objectives to consider when carrying out an
auditing
      1. The prevention and detection of fraud.
      2. To provide assistance to management by making available their
         experience gained from auditing other business.
1.1      STATEMENT OF PROBLEM
Fraud:- fraud can be described as a conscious premeditated action of a
person or group of person with the intention of inkling the truth or fact for
selfish person of advantage sometimes both intelligent cunnings and
knowledge, the action usually take the form of forgery, falsification of
document and authorizing signature.
         The problem of frauds and forgery in the banking industry arte due to
various reasons for instance.
         The very nature of banking business which involves human beings
that is customer and staff of diverse backgrounds and interacting in a
relationship of trust, there might be collaboration between a staff in or
committed fraud.\
         The convertible natures of most bank assets, chque and banks drafts
are susceptible use in fraud common societal misconception.
         “Banks have limitless fund or bank monies are booties to be
pondered” wide spread application of automated system fraudster will not be
easily detected.
1.2      OBJECTIVES OF STUDY.
         The aim of this study is intended to acquire reader with menace of
fraud in the banking industry with a view to assist banker customer in
minimizing the practices and tackling the dreaded monster in their day to a
day transaction, also to let the people know the problems, consequence and
cause of fraud in commercial bank in Nigeria.
         Another objective of this study is also to educate the general public as
to the role of auditors in fraud prevention in commercial banks in Nigeria
and the strategies taken by the auditors to reduce the effect of fraud to the
minimum.
1.3      SCOPE AND LIMITATION OF THE STUDY
      Investigation of the role offered by auditors in the prevention of fraud in
First Bank of Nigeria Plc to commercial banks and the economics as a
whole, the extent of which auditors take advantage of fraud prevention and
general effect on commercial bank in Nigeria owing to the limited time
study will concentrates mainly on the role auditor rendered in the First Bank
of Nigeria in fraud prevention also to conclude other commercial banks will
require more time and money available.
PLAN OF STUDY
      The project is made up of five chapter, tithe chapter one as general
introduction giving insight into what the study is about, chapter two give
review of its related literature, journals business magazine, news and
periodical, chapter three deals with research methodology and method of
data collection, chapter four deal with data analysis and interpretation,
chapter five deal with conclusion, finding and recommendation.
CHAPTER two
2.0   LITERATURE REVIEW
      It has not been easy to lay hands on specific books, journal and
magazine written purposely about the rule of auditor in fraud. It may lead to
the surrounding of a business out life.
      If the size of fraud is enormous prevention of fraud, therefore calls for
putting in place adequate interval controls among others.
      In certain types of business management may ask the auditor to
express an opinion on the system of internal control and may with to publish
the opinion in at least a limited way. As rule auditor have been reluctant to
have such opinion published as they do not feel that the general public has a
sufficient understanding of the subject matter of an internal control system.
      This is probably a justified concern on the part of external auditors as
the coverage of this subject in according literature and is our colleges and a
university has been quite minimal until recently.
2.1   HISTORICAL BACKGROUND OF THE CASE STUDY
      The first bank of Nigeria plc was founded in 1894 by a slipping
magnate from liver pool. Sir Abred Boose the bank commercial as a small
bank in the office of Elder Deupter and company in Lagos. Today first bank
of Nigeria plc has diversified into a wide ranges of banking activities and
service including commercial merchant and international banking and it has
become a patent factor in the development of the             country. It was
incorporated as a limited liability company in London on march 1894, with
head office in liver pool under the cooperate name of the bank of British
West Africa with a paid up capital of 12000 pounds sterling it started
business after it had absorbed it predecessor the Africa banking cooperation,
which was established earlier in 1892.
      The bank has experience ephemeral growth over the year with share
capital of # 55.6 million in 1980, which rose to 26million (including a
reserve of 53.8 million) in 1995, the bank total asset standing #59.82 billion.
      The bank was in billion supported with a deposit base of #41.641
billion when the bank began operation in 1894 it has a staff of six
comprising three Europeans and three Africa.
      Today the bank is virtually filling Nigeria; the bank was incorporated
locally in 1969 to become standard bank of Nigeria limited. Three active
participation of Nigeria in the management of the bank become corporate
policy further changes in the name of the bank were made in 1979 to First
bank of Nigeria Plc respectively.
      Chief (Dr) Joseph osanusi was then the managing directors and chief
executive assisted by executive directors namely, Mr. C.L Ademorah Mr.
C.F Awosiku, Mrs E.N Omotola, Mr.K.N.Rad for and Alhaji Asadauki the
executive director are Alhaji Mahunmound Atta, Mr. Y.N Gamide, P.S
Abinobo Okunnuge , Alhaji Bello Usman, Mr. C.A Kubok and chief O.I
Ogunanga.
2.2   DEFINITION OF FRAUD
      Fraud has been defined in various ways by different writer, according
to Kint Patrick 1985; fraud means an act of dishonesty, deceit and
imposture.
      A person who pretend to be something that he is not in a fraud as nare
a deceptive trick cheat and a swindler.
      By extortion fraud will include embezzlement, theft or any attempt to
unlawfully obtain misuse or harm the asset of the bank.
         Fraud can be committed by employees, customer or other operating
independently or in conspiracy with others inside or outside the financial
institution.
         According to H. Millclap, fraud referred to as irregularities involving
the uses of criminal deception of obtaining an unjust or illegal advantage in
the view of humbly (1974) he said that fraud is a criminal deception. Fraud
entails causing a person to accept what is false.
         Fraud is perform voluntarily and consequent up on the scheming and
planning against the defrauded, the function above was given by Emile Wolf
in his book let us consider the possible factor that usually facilitate fraud
perpetration in the bank.
         This is necessary to measure efficiently of management to lay claim to
complete knowledge on all factor that usually cause bank frauds various
identified contributory factors have been highlighted below.
         Another definition of fraud as an international misrepresentation of
financial information by one or more individual many management,
employees or third parties, it involves the use of criminal deception tpo
obtain illegal or unjust advantages.
2.3      CAUSES OF FRAUD IN COMMERCIAL BANKS
         In order to be able to identify the actual role of the auditors in fraud
prevention and control, it is useful to identify the most economic cause of
fraud.
         It is therefore expected and the extent of fraud would stimulate
institution to appreciate the role that the auditors are playing in this respect.
         The causes of fraud are usually grouped into two classes.
1 institution factor
2 Environmental or societal factor
The institution factors are those traceable to the internal environment if
the financial institutions while the environment or societal factors are
these which result from the influence of the environment or society on
the banking industry.
INSTITUTION CAUSE OF FRAUD NUMBER OF STAFF
   There is a large number of staff signed to a fraud without it being
RECRUITMENT SYSTEM
   Poor recruitment system where relevant experience technical
knowledge competence character and other staring qualities are not taken
into consideration.
NEGLIGENCE BY CUSTOMERS
   It is the negligence on the part of customer that provides ample
opportunities of staff of financial institution to perpetrate fraud.
USE OF SOPHISTICATED ACCOUNTING MACHINES
   Where these are named by inadequately equipped staff, error could
arise and thus lead to the production of enviable record.
FRUSTRATION
   Management practices when negative to the aspiration and
development need of staff frustrated which in ter breads fraudulence
practice.
POOR SECURITY ARRANGEMENT OF DOCUMENTS
   Where security of document are weak poor and wearable it is easy fro
fraudsters to have there way without any detection.
ENVIRONMENTAL / SOCIETAL CAUSES
   Slow ands tortuous legal process delays in prosecution of fraud case
have a way of frustrating the parties to the case.
Societal value
         The value system in any society is the set of rules that prescribes what
      is right or wrong within the society. In Nigeria there is the unquestioning
      attitude to the society towards the sources of individual wealth.
      Fear of Negative publicity
         May financial institution entails to report fraud cases, the authorities
      for fear of unnecessary negative publicity to their institution. Because
      this fraudster will be encouraged to continue with their fraud sinece they
      would not reported to the authorities.
         In view of the reason identified above magnitudes of the loss arising
      from bank on the increase.
         As a result to the damaging nature of fraud in the health and for the
      survival of the institution bring about the following consequences:
      1. Fraud also lead to loss of makers that ordinarily belong to other bank
      2. The running cost of the banks concerned not only increased is
         attention of management it distracted.
      3. As a result level or response available for use in the operation of the
         bank would reduce
      4. Fraud not only erode confidence of the public but also reduce there
         patronage.
2.4      TYPES OF FRAUD
         Forgery is a criminal reproduction of either a document or mandate or
but it could be forgery of bank mandate or both it could be forgery of bank
draft, customers cheques, customers signature or signature of a bank official.
         The objective of the fraudster is to under false prevention present
what is false and take as genuine and original.


THIEF/ EMBEZZLEMENT
        This involve outright stealing of banks asset cash requirement,
furniture and fitting in officials quarters e.t.c. because of the rudimentary
natures of this form of fraud, as the simplicity with which it can be detected
and its perpetrator punished it gradually failing out if vogile.
SHADOW / LENDING
        Shadow lending is a situation where lending official grant an advance
to another which upon close scouting or by making some legal principles
could amount to a borrowing by himself usually large amount are involved
and the borrowers is in most cases a company in which the lending official
has sole or majority interesting. This form of fraud is assuming a lending
position at various failed banks terrible tribunals nation wide.
ABUSE OF INTERNAL ROUTINE / PROCEDURE
        Some staff due to much acquaintance with procedure and routine tend
to infringe on them with iniquity provided by so doing. Some personal
benefit will occur to themselves example are over involution, fictitious
account manipulation of voucher e.t.c
Effect of fraud
        May and financial houses have been tagged directors and innocent
staff rendered jobless consequently many happily houses have been infected
with the bile of that stigma called fraud.
2.5     LEGAL EXPECTATION OF AUDITOR WITH REGARD TO
PROVED DETECTION
      a) LEGAL STATE OF THE AUDITOR
           A.     he is entitled to attend and head at all generally meeting
           B.     he may be an agent of the share holder so far as his audit of
                the financial statement to concerned. For the purpose of the
                audit he will bind the share holder.
           C.     He is expected to be at general meeting at which financial
                statement are read and is expected to hold office until the
                appointment a new auditor
           D.     He has a binding legal agreement with the bank who provides
                no consideration.
      B.        AUDITOR AS AN OFFICER
      1)        There are several statutory reference to the office of auditor
      2)        This is a complex situation and it is difficult to gie a definite
      answer
      3)        A good deal of legislation principally in the banks impose
      several civil and criminal penalties on “officer” of bank without
      clearly defining how is to include in the scope of the term
2.6   DUTIES         OF     AUDITORS        IN    RELATION         TO    FRAUD
DETECTION
      The auditor main duty is to make a report to the member of the bank
of the account examined by him and on every balance sheet, profit and loss
account and on all group financial statement copies of which are laid down
before the bank in generally meeting during his tenure of office. The auditor
are required to expressly state the following matter in report.
            1)        Whether the bank balance sheet and (unless is fraud is as
                      a consolidated profit and loss account ) profit and loss
                      account deal with by the report and are in agreement with
                      the books of account and returns
            2)        Whether in their opinion and to the best of their
                      information and according to the explanation given the
                      information require by the decree in the manna so
                      required and given a true and fair view.
FRAUD CONTROL AND PREVENTATION
      Like in the greater society, fraud has become one of the problem of
modern day banking while concern is growing by the day and management
vigilance is improving with the helps of computerization is as on record that
millions of naira are being lost to fraudster.
      This situation has contributed d into not small to the distress in banks,
the following measurable condition can use to control and prevent fraud
include:-
EFFECTIVE INTERNAL CONTROL
      Weak internal controls as well as outright convention of well intended
statutory regulation contribute to bank fraud internal control should therefore
engage. Understanding internal control systems most include recruitment of
“clean” staff.
QUALITY OF MANAGEMENT AND STAFF
      The quality of management makes the vital difference between sound
and unsound bank management result in excessive operating expensed
inadequate supervision of loan portfolio speculation and poor judgment
which precipitate fraud situation.
      For effective planning and execution of plan there must stability of
tenure of directors and key management staff.




CHAPTER THREE
    RESEARCH METHODOLOGY
      The whole of this chapter is a body of knowledge that describes and
procedure for gathering data, and indicating there limitation and resources,
classify their preposition and consequence and relation to there potential to
research advances.
         This report is based therefore on the finding of the researcher in his
effort to present an according and comprehension fixture of what the whole
study.
      o METHOD OF DATA COLLECTION
         In carrying out this research, the following methods were used in
         collecting the data needed.
3.0      Interview
4.0      Primary and secondary source of data
Primary and Secondary Source of Data
         In carry out this study, the researcher made extensive use of both
primary and secondary source of data, the primary source of data consist of
information gathered through interview granted to bank.
         The secondary source of data consisted of textbook, dictionary,
newspaper, periodical like journal magazine. However gathering of relevant
data from secondary source, for this was not without problem.
       The personal biase to the author might affect the accuracy of the
         research report.
       The objective of the researcher, this being so, only reference were
         made to secondary source of data in order to either buttress on
         disapprove an argument being put forward in the report.


      CHAPTER FOUR
       DATA            ANALYSIS,            PRESENTATION                AND
         INTERPRETATION
      All the data collected were tabulated and analyzed using enumeration
statistic, this involve the use of percentage, average and descriptive method
analysis.
      The use of this method of data analysis was justified because in this
first instance, information relation to bank fraud treated as being very
confidential this is because they constitute a very sensitive and controversial
area of banking operation, there information relating to bank fraud are not
made available easily irrespective of the purpose for which it is intended.
4.1   PRESENTATION AND INTERPRETATION OF DATA
      The data used in the presentation and interpretation of this study were
collected through interview question designed and administered by the
researcher; these source were meant to argument the information gathered
from primary and secondary source of data.
      Information gathered is presented in tabular form and briefly
discussed and interpreted accordingly, for the purpose of academic
convenience and convenience, percentage are given as computed, the
responses are hereby analyzed and interpreted.




Table 4.1
      What are the commonest source of fraud to the bank and customer?
Responses                  Respondent                Percentage
Stealing                   9                         22.5
Dishonesty                 10                        25.0
Deceit                     6                         15.0
All of the above           15                        37.5
Total                      40                        100
        From the above table, 9(22.5%) agreed that fraud are directly
associated with stealing, 10 and stated response rate of (25.0%) and 15% in
favour of dishonesty and deceit respectively while 37.5% are of the opinion
that fraud are combination of the entire factor.
Table 4.2
        What are various type of bank fraud know to you?
Responses                  Respondent                Percentage
Forgery                    17                        42.5
Thief                      8                         20.0
Shadow lending             11                        27.5
Abuse       of     internal 4                        10.0
routine
Total                      40                        100
        From the above table 17(42.5%) stated forgery fraud, 8(20.0%) for
thief fraud, 11(27.5%) for shadow lending and 4(10%) for abuse of internal
routine fraud.




Table 4.3
        Who are those principally involved in bank fraud?
Responses                  Respondent                Percentage
Bank staff                 26                        65
Bank customer              10                        25
Non customer               4                         10
Non staff                  -                         -
Total                      40                        100
        From the above table, 26(65%) of the respondent believed that of all
the perpetrator of respondent believed that all the perpetrator of bank fraud,
the bank staff are the most guilty while 10(25%) agreed that bank customer
are the principal perpetration only 4(10%) agreed that those who are neither
staff nor customer could commit bank fraud.
Table 4.4
        Can fraud succeed without the active participation of auditor or
collusion of bank employees?
Responses                  Respondent                Percentage
Yes                        10                        25
No                         30                        75
Total                      40                        100
        The table above show that 19(25%) of the respondent agreed that
fraud can succeed without the bank auditor or employees knowing about it
while 30(75%) hold on to the fact that bank fraud cannot succeed without
the knowledge or participation of auditor and banks employee of the bank.




Table 4.5
        What percentage of the budgeted annual running cost of bank is spent
in prevention of frauds?
Responses                  Respondent               Percentage
30%                        23                       57.5
50%                        17                       42.5
70%                        -                        -
Total                      40                       100
        Here 23(57.5%) agreed to the fact that bank spent about 30% of their
annual running cost in the prevention of fraud, 17(42.5%) agreed to 50%
which none of the respondent agreed to 70%.
Table 4.6
        Do you consider the management control fraudster adequate?
Responses                  Respondent               Percentage
Yes                        14                       35
No                         22                       55
Don’t know                 4                        10
Total                      40                       100
        From the above table, 14(35%) of the respondent are of the opinion
that the management control measure are adequate, 22(55%) majority are
not adequate while 4(10%) do not know whether management control
measure are adequate or not.




Table 4.7
        What percentage of fraud incident is reported to the general public?
Responses                   Respondent                Percentage
20%                         25                        62.5
30%                         9                         22.5
60%                         6                         15
80%                         -                         -
Total                       10                        100
        It is clear from the above table that only 20% of fraud incident is
reported to the general public, this is as affirmed by 25(62.5%) of the
respondent.
        However, 9(22.5%) of the respondent agreed that only 30% of the
fraud case are reported while 6(15%) are of the opinion that 60% of the case
are reported to the general public while non of the respondent suggested a
report rate of 80%
Table 4.8
        What do you think are the remedies to the problem of fraud in
commercial bank?
Responses                                Respondent          Percentage
Proper internal control system           19                  57.5
Proper external control system           12                  30.0
Changes of the control check             -                   -
Socio     economic    and       political 9                  22.5
system
Total                                    40                  100
        As remedies to the problem of fraud in our banking system, 19(47.5)
of the people interviewed were of the opinion that bank should establish
better internal control check, 12(30%) agreed to proper external control
check while 9(22.5%) advocate for a total changes in the socio economic
and political system.




CHAPTER FIVE
5.0   SUMMARY, CONCLUSION AND RECOMMENDATION
       Attempt has been made through this paper to identify various forms of
bank fraud and it its effect on individual, banking institution and the nation
at large.
       It was observed that need and moral decadence are justification of the
average Nigeria is some of the factor following the incident of fraud in our
banks.
       The institution and environmental factors of fraud are the cause of
fraud in commercial banks.
       The study has revealed the lack of effective security system in or
banks as a factor leading to some of the fraudulent practices.
As stated, the main objective of carrying out this study among others, is to
contribute meaningfully to the growth and development of the various
factors of the banking and financial industry and the national economy as a
whole, to achieve this goal, structured interview technique were used to aid
the gathering of relevant and useful data which were collected before
arriving at the researcher finding were used.
       The first hypothesis has been affirmed in table 4.1 and 4.2 where it is
crystal clear that fraud lead to unwarranted loses to both banks and the
customer. As regard second hypothesis, the analysis in table 4.3 and 4.4
proved that more than 75% of bank fraud succeed with active convenience
or collaboration of bank staff.
       The third hypothesis has also been affirm by the analysis in table 4.7
which gave credence to the popular belief that management control measure
in Nigeria are not without loopholes. On the other hand, the staff punishment
that meant to serve as deterrent to fraudsters have ironically turned a sopurce
of motivation with its damaging consequence.
       The fourth hypothesis has also been affirmed as analyzed in table 4.5
above 30% if the budgeted annual running costs of the banks are spent on
preventing fraud. This rate is high enough to contribute to the improvement
of banking service to the customers, but which is lavished in an attempt to
save our society from an incurable disease.
       The forth and the last hypothesis has also been correctly proved as
analyzed in table 4.8 that bank are generally skeptical about reporting about
only 20% of fraud incidence are reported to the public.
       The influence drawn from this analysis is that tools used to commit
fraud are diversified and the experience of the fraudsters become more
enriched which further affirms the theory that there is a natural relationship
between the existence, growth and sophistication of crime and the socio-
economic development and complexity of every society.
5.2    CONCLUSION
       An attempt has been made in the previous chapter to talks in overview
of the problem, consequences and cause of fraud in commercial banks in
Nigeria. In view of the craze for money in Nigeria misplaced value judgment
and the prevailing harsh economic environment big time fraud and on the
increase and the banks are losing amount running into million naira to
fraudster also everyday in most when the frauds are detected early, amount
already drown are usually very difficult to recover.
       These researcher work has show that ever where bank inspector and
auditor dissectors and auditor discover frauds, the corporation of the police
has not been particularly encouraging, time is therefore of the essence in
affecting control of fraud.
       A sound and effective control system will not only prevent fraud but
will at a very early stage detect it.
      Management staffs have important roles to play in unsurely that there
are sound internal control systems in their banks and that laid down
procedure are reviewed regularly and effective followed.
      It is part of audit duties to ensure that the control system is placed in
various institution reflect the realities of the environment at all time.
5.3    RECOMMENDATION
      Obviously, if the little confidence that the bank have built up for
themselves is devoid the impact will be disastrous for the over all
development of banking in Nigeria.
      It is important to stress the need for all financial institutions to comply
with statutory requirement of rendering returns for effectiveness of all the
policy measure which the government, monetary and supervisor authorities
right design to curb the menace.
      More over the prevention, control detection of frauds should be a
collaborative effort of banks, their customer friends and family regions
bodies, traditional rulers and the government including relevant agencies.
Fraud in the financial system should as much as possible be minimized as it
kills the institutions and destroy the economy of a nation.
      All hands must therefore be on deck prevent and control frauds in our
commercial banks.
      Auditors should or must develop ensuring mind and apply common
sense in their approach to auditor and inspection of banks of account.




BIBLIOGRAPHY
Leshea R. Howard Auditing- Seventh Edition Published by Macdonaid and
            Evans limited 1982 Tunde Oremade ACA Auditing Standard
            and Guide Line Published by West Africa Book Published Ltd
A.h Millichamp Auditing Six Edition Published by D.P Publication ltd
Andrew O Chamber, George M. Salim Gerald Vinter International Auditing
            Second Edition.
Seun Oluwatosin Principle of Auditing Volume I and V
Boniface Chizfa (1991) Fraud in the Banking Industry Published in the
            Journal of Chartered Institute of Bankers of Nigeria October-
            December 1991 Edition




TABLE OF CONTENTS
Title page
Certification
Dedication
Acknowledgment Table of Content
CHAPTER ONE
            o Introduction
            o Statement of the Problem
            o Objective of the Study
            o Scope and Limitation of the Study
CHAPTER TWO
      2.3Literature Review
      2.4History Background of the Case Study
      2.5Definition of Fraud
      2.6Cause of Fraud in Commercial Bank
      2.7Type of Fraud
      2.8Legal Expectation of the Auditor with Regard to Proved Detection
      2.9Duties of Auditor in Relation to Detection
CHAPTER THREE
1        Research Methodology
3.1      Method of Data Collection
CHAPTER FOUR
2        Data Presentation Interpretation and Analysis
CHAPTER FIVE
3        Summary
3.1      Conclusion
3.2      Recommendation
Bibliography

				
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