Fraud as a Negative Catalyst in the Nigerian Banking Industry

More documents

Recommendations

Info

Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 2(5):357-363 (ISSN:2141-7024)has never been at a higher level. Never before havewe seen attention to the actual steps; procedures andcontrol of monetary transactions. Employees’ as wellas firms in all industries engage in fraudulentpractices all over one world. Although the existenceof fraud in our banks is not an uncommon orunexpected behaviour, the prevalence ‘of it is what isworrying because of all the various problemsconfronting the most untraceable’. (Ogwuma, 1985)and Akindele R.I el al (2008).Frauds in banks early lead to loss of monies thatordinarily belong to someone other than the banks.The loss results in some ceases in reducing the levelof resources available for use in the operations of thebanks. In very bad cases where frauds occur withcrippling frequency and in wholesomeness, the bankmay be forced to close down as a result. When thebank loses money and is wound up, the customerslose money. This leads to loss of confidence andeventually reduced patronage. Another reason forworrying in the banking industry is the vast variety ofnature, character and methodology employed infraud. Moreover, the control of identified specieseems to give birth to another that is invariably moresophisticated and complex. Thus each case can besaid to be a variant of another and undoubtedly aninstructive study in human negative use of ingenuityand endowment.Crosse and Hempel (1973) and Canhil M el al (2002)had identified five major types of fraud perpetrated inthe banking industry. These include; “Borrowing” from the till. This usually starts outwith borrowing a few naira, which are returned.Overtime, the sums involved increase and thewillingness ad ability to ‘repay’ declines. Forgeries of customers’ signature to withdrawfrom his/her account. Transfer from customers account to collaboratorsaccount. Granting of loans to fictitious borrowers. Granting of loans without adequate informationand security from the borrower.There are two main sources of frauds in banks – theinternal source ad external. Though distinguishable intheory, these sources are very often inseparable inpractice. That is to say, a successful fraud often takesplace and succeeds as a result of the collaborationintentional or unintentional (i.e due to carelessness orerror of judgment, of an insider – a bank employee ormember of staff).Indeed it was recently affirmedthat” the public believes and rightly too, that mostfrauds in banks are the active connivance of bankstaff. Otherwise how does anybody explain forexample, how a cheque drawn in favour of theFederal Government of Nigeria is paid into someprivate account and the funds withdrawn? Or howdoes one explain how a completely differentinstitution or individual collects a draft prepared inthe name of an institution or individual? This is notan exception of the rule, it is frequent occurrence”(Soneye, 1985), Botton et al (2002)The sources of bank fraud can also be classified intoinstitutional factors, lapses or inadequacies andenvironmental/societal factors, lapses, Adewunmi,(1985), Cahill, Chen and Lambert (2002) andHulthen R et al (2002).Institutional factors/lapses/inadequacies are factorsthat we can trace to the internal environment of theorganization. They are, to a great extent, factorswithin the control of the management of the bank.The major institutional source of fraud is poormanagement. This is often manifested in variousways. Lack of adequate supervision is a manifestationof poor management. Also inadequate control in theform of effective policies, procedures and systems isindicative of poor management (Biscaia, AlexiouPavon and Hulthen 2002).Socio economic lapses/inadequacies: The bank is anintegral part of society. It is affected by as well as itaffects the elements in its immediate and remoteenvironment. If the wrote society of which the bankis a part, is morally bankrupt, it will be difficult, ifnot impossible to expect the banks to be insulatedfrom the effects of such moral decadence. Oursocieties have debased the entire old moral standardsand appear to be unconcerned with probity, honesty,integrity and “goodname”. The family friends, thereligious houses and society at large seem not to carehow you come about your riches but accept,accommodate and even respect you for your wealth,however, dishonesty it has been acquired. All theseencourage fraud as the end seems to justify themeans, and no means seems to be morallyunacceptable.Nature and Types of FraudFrauds in financial institutions vary widely in naturecharacter and method of perpetrations. But in general,fraud can be classified into; perpetrators and methodused on the basis of perpetrators, three categories arenoted, namely: - internal, external and mixedperpetrations. Internal perpetrators are made up of thestaff, external perpetrators refer to outsiders notconnected with the institution, mixed refers to acollusion between the staff and external parties.Classification of fraud by method used is the mostcommon form of classification employed by financialinstitutions; the list is in exhaustive as fraudsters on adaily basis are devising new methods. The followingare the most important and common types of fraudhighlighted by Bank Administration Institute (1989)in Fraud prevention and Detection series.Advanced Fees Fraud: Popularly known as ‘419’,advanced fees fraud may involve an gent with an358
Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 2(5):357-363 (ISSN:2141-7024)offer of a business proposition which would lead toaccess often for a long term. The source of funds orbusiness is not specific and can only be reachedthrough the agent who does so for a commission.Once the commission is paid the agent disappearsinto thin air.Account Opening Fraud: This involves a depositand cashing of fraudulent cheques. An individualasking to open a transaction account at anunsuspecting bank with false identification papersunknown to the bank does it.Cheque Kiting: Kiting, as defined by us comptrollerof the currency’s policy guidelines for national BankDirectors, is a method whereby a depositor utilizesthe time required for cheques to dear to obtain anunauthorized loan without any interest charge’. Thegoal of the kiter may be to use these uncontrolledfunds, interest free, for a short time to overcome atemporary cash shortage or to withdraw fundspermanently for personal use.Cheque Fraud: Most common cases of this kind offraud are through stolen cheques and forgedsignatures. This is very popular because cheques areused daily and are not too hard to come by. Mosttimes, this type of fraud does not require collusionand can sometimes go understand unless theperpetrator gets greedy.Clearing Fraud: This is a fraud perpetrated in theclearing of cheques. It is done by suppression of aninstrument so that at the expiration of the clearingperiod applicable to the instrument, the collectingbank will give value as through the paying bank hadconfined the instrument good for payment.Misrouting of clearing cheques can also assistfraudsters to complete a clearing fraud.Counterfeit Securities: This is one of the oldestforms of crime. Documents, securities, bonds andcertificate could be forged, duplicated, adjusted oraltered and presented for loan collection. Equallytreasury notes, cashiers cheques, bankers acceptance,certificate of deposit in an altered form could bepresented to banker redemption.Computer Fraud: This could be perpetrated by thecorruption of a programme, hacking, tampering witha diskette to gain access to unauthorized areas andgive credit to an account for which the funds were notoriginally intended.Loan Fraud: This is perpetrated when funds are lentto a non-borrowing customer or a borrowingcustomer that has exceeded his credit limit. In mostcases the staff are the perpetrators like the cashiersand they hide this from the management.Money laundering fraud: This is a means to concealthe existence, source or use of illegal obtained moneyby converting the cash into untraceable transactionsin banks. The cash is disguised to make the incomeappear legitimate and is usually done by collusion ofa customer with a member of staff.Money Transfer Fraud: Fraudulent money transfermay result from a request solely for the purpose ofcommitting a fraud or the alteration of a genuinefunds transfer request. This can be done by changingnames, adjusting figures or account numbers. Thisform of fraud is made easy for fraudsters because ofthe ease at which they can be dare e.g mail,telephone, electronic process, telex and even thelatest technology of using GSM phones.Telex Fraud: The messages that are passed throughtelex in form of codes could be altered to divert thefunds to another account.Letters of Credit: Most common in internationaltrading, these are instruments used across borders adscan be forged, altered, adjusted and take longer toidentify. So, in most cases, perpetrators escape.METHODSIn understanding this work, two types of data wererelied upon, namely primary and secondary. On theprimary data, structured questionnaire were designedand constructed to gather information in realizing theobjectives of the research. For secondary data, theresearcher relied mostly on archival materials,internal records of banks, Publications of bank staff,Seminar papers,The population for this study was 6 banks; 3orthodox and new generation. Six banks were thenselected; three orthodox namely: First bank, Nationalbank and Wema bank and three new-generationbanks. The essence of dividing the banking industryinto two is to critically assess any differences orvariances in the types, causes, and detection methodsand control measures of fraud. Also to see if theorthodox banks with their old methods are successfulin reducing fraud, to see the variation in their lossesand the effects.The new generation banks are also looked at to see ifthe excessive reliance on computer andtechnologically complex machinery is not anothercause of the increase in fraud in banks. The samplesize of the study consists of 50 subjects, which werechosen from simple random method.RESULTInformation gathered from the research as perresponses towards fraud in the Nigerian bankingindustry in terms of total scores, mean score, standarderror, standard deviation, variance were shown intable 1(see appendices). Table 1 shows a summary ofthe variables. Using the mean statistic we can say thattraining is the strongest variable and so the lack ofadequate training is a major cause of fraud.Inadequate communication channel is another majorcause of fraud. This is followed by weak leadershipstyles of supervisors and managers. From thissummary we can deduce that inadequate training hasthe greatest impact compared with weak leadershipstyle and poor communication. The result was testedfurther using analysis of variance (ANOVA) to359
Page 1: Journal of Emerging Trends in Econo
Page 5 and 6: Journal of Emerging Trends in Econo
Page 7: Journal of Emerging Trends in Econo

Fraud as a Negative Catalyst in the Nigerian Banking Industry

Create successful ePaper yourself

Delete template?

Save as template?