BANKING FRAUD AND ITS EFFECTS ON NIGERIA ECONOMY

CHAPTER ONE

INTRODUCTION

1.1:
BACKGROUND OF THE STUDY

The significance of the banking sector
in any country stems from its role of financial mobilization from surplus to
deficit unit, provision of a competent payment system and facilitation of the
implementation of monetary policies. In intermediation, banks mobilize savings
from the surplus units of the economy and channel these funds to the deficit
unit, particularly private business enterprises, for the purposes of expanding
their productive capacity.

The banking sector has become one of the
most critical sectors in the economy with wide effect on the level and
direction of economic growth and transformation and on such economic variables
as the rate of unemployment and inflation which directly affect the lives of
our people. Today, the very integrity and survivability of these laudable
functions of Nigerian banks have been deteriorated in view of incessant frauds
and accounting scandals.

Fraud however has been defined by many
scholars Olufidipe (1994) defined trick deliberately practiced in order to gain
some advantag (1991), fraud is described as „any premeditat a person or group
of persons with the intention of altering facts in order to obtain undue
personal monetary advantage‟. Another scholar Idowu (2 camouflage, or exclusion
of the truth for the purpose of dishonesty/stage management to the

financial damage of an individual or an
organization. Going by the definition of the chambers universal learners
dictionary Kirkpatrick (1985) define fraud as any person who pretends to be
something that he is not is a fraud, a snare, a deceptive, trick, cheat and a
swindler.

Having
explained what fraud is, it is pertinent to define bank fraud which is the
subject matter of this study; however bank fraud is the use of fraudulent means
to obtain money, assets, or other property owned or held by a financial
institution, or to obtain money from depositors by fraudulently representing to
be a bank or financial institution. For an action to constitute fraud there
must be a dishonest intention and the action must be intended to benefit the
perpetrators to the detriment of another person.

Going by the
definitions, frauds in Nigeria cannot be restricted to the banks alone. A lot
of fraudulent activities are prevalent in Nigerian economy ranging from bloody
killings, ritual, kidnapping, robberies, forgery, misappropriation, cheating,
and gangsters and looting. Bank fraud ranges from account-opening, money
transfer fraud, cheque kiting, telex fraud, money laundering fraud, computer
fraud, loans fraud and the likes.

According to
Oseni (2006) the incessant frauds in the banking industry are getting to a
level at which many stakeholders in the industry are losing their trust and
confidence in the industry. Corroborating the view of Oseni, Idolor (2010),
stressed that the spate of fraud in Nigerian banking sector has lately become a
source of embarrassment to the nation as apparent in the seeming attempts of
the law enforcement agencies to successfully track down culprits. Although the
incidence of frauds is neither limited to the banking industry nor peculiar to
Nigeria economy, however the high rate of fraud within the banking industry,
calls for urgent attention with a view to finding solutions.

Fraud in its
effect reduces organizational assets and increases its liabilities. With
regards to banking industry, it may engender crises of confidence among the
banking public, impede the going concern status of the bank and ultimately lead
to bank failure (Adeyemo, 2012).

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According to
kimani (2011) `A way of making money is to stop losing it. 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 years old child talks
about 419, the name give to the newly discovered advanced fee fraud that is
hunting our nation.

In July 2004,
central bank of Nigeria (CBN) unveiled new banking guidelines designed to
consolidate and restructure the industry through mergers and acquisition. Banks
and Other Financial Institutions Act (BOFIA) 1991, section 15, was also
designed to prevent fraud and to make Nigeria banks more competitive and able
to play in the global market.

The Nigeria
Deposit Insurance Corporation (NDIC) 2007 annual report and statement of accounts
report that cases of attempted frauds and forgeries in insured banks, as at
2007 exceeded what was recorded in the year 2006. For instance, the NDIC report
for 2007 disclosed that a total of 1,553 reported cases of attempted frauds and
forgeries involving over symbols ₦10
billion compare with 1,193 reported cases of fraud and forgeries involving ₦4,832.17 billion
in the year 2006. The foregoing statistics clearly unfolds the extent to which
fraud had had eaten deep into the financial strength benefit the perpetrators
to the department of another person.

Today, banks
cannot withstand the growing pressure of competition among various banks due to
the monster called bank frauds. If this act of fraud is not arrested, it might
delete our resources because foreign investors might not find it wise to
transact business via our banks.

1.2:
STATEMENT OF THE PROBLEM

Banks generally
have been experiencing fraud since its evolution. This affects the performance
and the profitability of banks and may possibly lead to distress. The inability
to identify the

immediate and
remote causes of continuous cases of bank frauds in virtually all banks in
Nigeria is one of the problems brought to bare.

Fraud is a major
challenge to the entire banking industry; no bank is immune to it and in all
facets of life (Olorunsegun, 2010). The banking public expects accountability,
fairness, transparency in their day operation for effective intermediation.

Though there
were known cases of fraud in the sector, one major question still remain
unanswered which is what is the nature and different ways through which fraud
can be perpetuated in banks. It is asserted by Adeyemo (2012) that fraud in the
bank is possible with corroboration of an insider. The banks are expected to
ensure that they carry out their responsibilities with sincerity of purpose
which is devoid of fraudulent practices. This is relevant if the banking sector
is to gain public trust and goodwill.

Another problem
is that the government and its agencies have not put enough effort in the
prevention and control of bank fraud in Nigeria; otherwise the level of bank
fraud would have reduced to a bearable level. Agencies like money laundering
Act which helps to place surveillance on any account through which such excess
cash deposits or withdrawals are made, Nigeria Deposit Insurance Corporation
which is involved in managing bank distress, failed banks and financial
malpractices in banks Act which was vested with powers to recover the debts of
failed banks, dishonored cheques Act which affects banks in their collection
and payment of cheques on behalf of their customers and Bill of Exchange Act
which helps to collect the proceeds of trade bills of exchange and cheques are
not putting enough effort in the prevention and control of bank fraud that is
the reason why bank fraud is increasing day by day in Nigeria.

However,
environmental or social factors pose a problem in the activities of banking
industry as they contribute to bank fraud in Nigeria. Environmental factors are
those that can be trace to the

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immediate and
remote environment of the bank these factors are manifest in the following
manner; the desire to get rich quick slow and complex legal process, poverty
and the widening gap between the rich and the poor, competition among bank
staff, the desire to belong to any social class, job insecurity, peer group
pressure and societal expectations.

1.3:
OBJECTIVES OF THE STUDY

The general objective
of this study is to identify bank fraud and its effect on bank performance in
Nigeria but the general objectives of this study are;

1. To identify the causes of bank fraud in
   Nigeria.

1. To identify the forms of bank fraud in Nigeria.

1. To examine the efforts of
   government and its agencies in the prevention and control of bank fraud in
   Nigeria.

1. To examine the extent to which
   environmental or social factors contributed to bank fraud in Nigeria.

1.4:
RESEARCH QUESTIONS

The
following research question guided this study;

1.      What
are the actual causes of bank fraud in Nigeria?

2.      In
what way do directors/ managers contribute to bank frauds in Nigeria?

3.      What
are the efforts of government and its agencies on bank fraud in Nigeria?

4.      What
constitutes environmental or social factors of bank fraud in Nigeria?

1.5:
RESEARCH HYPOTHESES

The
following research hypothesis were formulated and later tested. They include;

H0:
Lack of adequate motivation is not a major cause of fraud in banks.

H1:
Lack of adequate motivation is a major cause of fraud in banks.

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H0:
Looting of fund by bank
manager/directors does not constitute the major form of fraud inNigeria.

H1:  Looting of fund by bank manager /directors
constitutes the major form of fraud in Nigeria.

H0:
Government effort and its agencies have
negatively impacted on combating of fraud inNigeria

H1:
Government effort and its agencies have positively impacted on combating of
fraud inNigeria.

H0;
Environmental or social factors does not have a negative impact on bank fraud.

H1;
Environmental or social factors have positive impact on bank fraud.

1.6:
SCOPE OF THE STUDY

This study
centers on fraud in the Nigerian banking industry with a keen interest on five
( 5 ) insured banks with data covering 2002-2015. The five insured banks
covered includes First Bank of Nigeria Plc, Union Bank of Nigeria Plc, United
Bank for Africa Plc, Diamond Bank Plc, Zenith Bank Plc, all in Enugu state,
Oparah Avenue Branch . To achieve the objectives of this study, primary and
secondary data were used. One hundred and twenty five (125) questionnaires were
administered to the study respondents that were purposively selected from five
(5) insured banks in Enugu.

1.7:
SIGNIFICANCE OF THE STUDY

This
research work will be beneficial to the following groups;

(a) Banks and
Financial Institutions

It will be
beneficial to the authorities concern with banking operation, managements,
staff customers and prospective investors in the industry so as to identify the
various means (theft,

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embezzlement,
forgeries e.t.c) employed in defrauding banks and to identify the cause of
frauds in banks in Nigeria.

(b) Government

The government
will find this work relevant to future policy and decision making with
particular to restructuring its agencies for better performance in detaching
frauds in Nigeria banks.

(c) General
Public

The
study will be useful to the general public because the banking industry touches
the life of everyone in an economy. Banks all over the world have contributed
immensely to the economic growth and development of nations. As such, problems
such as fraud which can hinder the smooth operation of the banking industry
should be viewed with all seriousness in other not to intercept or destroy the
rate of development.

(d) Academia

It
will also be beneficial to people who which to carry out further research in
this area, to find this work relevant in their research.

1.8:
LIMITATION OF THE STUDY

Bank fraud and
its effect on the performance of banks is an extensive topic that may involve
commercial banks and community banks. The researcher will like to touch all
aspects of banking activities, but for lack of time and financial constraints,
the researcher limit his work to frauds in five (5) insured banks.

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