ABSTRACT

In fact, the main aim of this research work was to carefully examine fraud in the banking industry using one selected bank from commercial bank. The reason behind this is that all the banks are similar and any discovery made will be appreciable to all the banks operating in the country.

The research identified and expose the causes, the various forms of fraud and its tremendous effects on banks in general. It delved into determining the presence of legal loophole in the Nigerian legal process which facilitates the perpetration of fraud. It also identify the means of preventing or reducing incidence of fraud in Nigeria Banking operations.

Apart from this, in carrying out this research questionnaires were distributed to bank staff. The information gathered from the respondents were supplemented with oral interviews, personal observation and a review of some related books journals and newspaper.

The responses of the returned questionnaire were analyzed under statistical chi – square, statistical distribution tables of frequencies, percentages, pie chart and bar chart for the purpose of generalization and influences based on the variable studied.

The result showed that there was evidence of fraud in the Nigerian banking industry and that its presence has consequently culminated into general public lack of interest in the banking industry.

Finally, from the foregone analysis, it is established that fraud reduces our economic development and the solutions proffered if carefully and fully implemented, it will go a long way to checking fraud in the banking operations.

TABLE OF CONTENT

CHAPTER ONE

1.0    INTRODUCTION

1.1    STATEMENT OF THE PROBLEM

1.2    PURPOSE OF THE STUDY

1.3    SIGNIFICANCE OF THE STUDY

1.4    STATEMENT OF HYPOTHESIS

1.5    SCOPE AND LIMITATIONS OF THE STUDY

1.6    DEFINITION OF TERMS

CHAPTER TWO

2.0     REVIEW OF RELATED LITERATURE

2.1    THE CONCEPT OF FRAUD

2.2       The Concept Of Fraud In The Banking Industry

2.3    SOURCES, FORMS AND CAUSES OF FRAUD

2.4    Sources of fraud

2.5    Forms of fraud in the Nigerian Banking industry

2.6    CAUSES OF FRAUD IN THE NIGERIA BANKING INDUSTRY

2.7       DETECTION OF FRAUD IN BANKS

2.8      PREVENTION OF FRAUD IN BANKS.       

2.9     THE EFFECTS AND DANGERS OF FRAUD:       

2.10    LAWS RELATING TO FRAUD IN BANKS:   

2. 11  LIABILITY FOR PAYMENT AFTER FORGED

              2.12  LIABILITY FOR LOSSES OCCASIONED UPON CASHIER FRAUD:  

              2.13 LIABILITY FOR LOSSES OCCASIONED UPON FALSIFICATION OF ACCOUNTS:    

CHAPTER THREE

    3.0    RESEARCH DESIGN AND METHODOLOGY.

             3.1    AREA STUDY:

3.2       TARGET POPULATION;

3.3       SAMPLE SIZE SELECTION

3.4       RESEARCH DESIGN

3.5    SOURCES OF DATA;

3.7    METHOD OF DATA COLLECTION;

3.8     DISTRIBUTION OF QUESTIONNAIRE

CHAPTER FOUR

4.0    PRESENTATIONS AND ANALYSIS OF DATA

4.1       PRESENTATION OF DATA

CHAPTER FIVE

              5.0       SUMMARY OF FINDINGS, CONCLUSIONS AND RECONDITIONS.

5.1       FINDINGS

5.2   CONCLUSION

5.2       RECOMMENDATIONS

BIBLIOGRAPHY

                   CHAPTER ONE

1.0     INTRODUCTION

The word fraud refers to the irregularities involving the use of criminal deception to obtain an unjust or illegal advantage. It send a wave of doubts, curiosity, anxiety and concern to people as regards the safety of be it financial or otherwise. It exists in different sectors of our nations economy, education, agriculture, mining, production, banking etc.

      However, First Bank of Nigeria Plc was founded in 1894, by a shipping magnate from Liverpool, Sir Alfred Jones, the Bank commenced as a small operation in the office of Elder Dumpster & company in Lagos.

            The Bank was incorporated as a limited liability company on March 31, 1894 with Head office in Liverpool. It started business under the corporate name of the Bank for British West Africa (BBWA) with a paid – up capital of 12,000pounds sterling, after absorbing its predecessor, the African Banking Corporation, which was established earlier in 1892. This signaled the pre – eminent position which the Bank was to establish in the banking industry in West Africa. In the early years of operations, the Bank recorded an impressive growth and worked closely with the colonial government in performing the traditional functions of a central bank, such as issue of specie in the West African sub region

To justify its West Africa coverage, a branch was opened I Accra, Gold Coast (now Ghana) in 1896 and another in Freetown, Sierre Leone in 1898. These marked the genesis of the Bank’s international banking operations. The second branch of the Bank in Nigeria was in the old Calabar in 1900 and two years later services were extended to Northern Nigeria.

Currently with 339 branches spread throughout the federation, the Bank maintains the largest branch network in the industry. The Bank became the first financial institution in Nigeria to establish a subsidiary bank in the United Kingdom.

Over the years, the Bank has experienced phenomenal growth. With a share capital of N55.6 million in 1980, the Bank share capital grew to N1.270 billion as at March 2003. the bank’s total asset base was N320.58 billion while its deposit base stood at N193.955 billion as at March 2003. Also the Bank’s market capitalization stood at N66.05 billion i.e. N26.00k per share as at 31^st March 2003.

To reposition and to take advantage of opportunities in the changing environment, the Bank embarked on several restructuring initiatives. In 1957, it changed its name from Bank of British West Africa to Bank of West Africa in 1969, the Bank was incorporated locally as the standard Bank of Nigeria Limited in line with the companies Decree of 1968.

Changes in the name of the Bank also occurred in 1979 and 1991, to First Bank of Nigeria limited and First Bank of Nigeria Plc; respectively.

Apart from this, fraud in the Nigeria Banking Industry is as old as the system itself, a retrospective analysis disclosed that between 1892 and 1952, a period commonly refer to as “free banking era” in Nigeria. This happened when there was no form of Banking Act or Ordinance to regulate the establishment and operations of commercial banks or a central bank which supervises and control other banks. Within this period expatriate and indigenous banks were established, all being commercial bank.

Among the banks were:

1.                   The British Bank of West Africa in 1894. which later become the First Bank of Nigeria Plc in 1991.

2.                   The Colonial bank in 1917 (later became Barclays Banks Dominion Colonial and Overseas and presently the Union Bank of Nigeria Plc.

3.                   The African continental Bank Plc in 1947

4.                   The National Bank of Nigeria in 1933

5.                   The Agbormagbe Bank (now called Wema Bank) in 1945 and

6.                   Other indigenous banks that failed following introduction of banking ordinance of 1952 whose provisions they could not meet.

Some of these banks that were registered between 1892 and 1952 never opened doors for business even for a day while some simply collected customer’s deposit and vanished into tin air. It is a bitter truth that those that failed were for reasons traceable to fraud; mismanagement and lack of government patronage. The consequence was, it deprived the individuals, organisations concerned and nation in general, funds needed for development and increased standard of living. This resulted in a loss of faith and trust on the banks by Nigerians and thus on impediment for rapid development of banking operations in the country.

With the banking ordinance of 1952, some element of sanity entered the Nigerian banking industry whish was noticed in the regulation of the formation, operations and activities of commercial banks in the country.

From history to the present, fraud has remained a permanent feature, a regular cankerworm and an infested blood in the Nigerian banking industry and assuming greater proportion, different dimensions and sophistication day after day. Subsequent to the first banking ordinance in 1952 the Central Bank of Nigeria (CBN) Act of 1959 and other Acts and ordinances with their amendments from time to time which regulated and controlled the operations of the banking industry in Nigeria, the occurrence of fraud could not be helped either.

Today, the era of modern banking operation with improved communication systems, computer technology and automated electronic gadgets and other precautionary measures by the banks, fraud has nevertheless been on the increase with its attendant misfortunes on its victims. Discoveries during investigations shows that banks now take extra precautions before clearing cheque because of rampant incidents of fraud and forgery which a bank boss placed on the average of N1 million per working day of the year in Nigeria. Because of this precautions, customers now waste a lot of hours in the banks before ever they were paid their cheques; thus a defect in the quality of banks services. These customers get tired in the midst of the waiting crowd in the bank hall. Even with the long process of clearing, fraud could not be terminated as those who perpetrate it are always clever devising more sophisticated fraud scheme to circumvent the already installed measures.

It is interesting to note that the Nigerian Banking industry comprises of the Central Bank, Commercial banks, Merchant banks, Development banks, People’s bank and community banks. The aim of this research work is to make an empirical examination of fraud in the industry in general using the First Bank of Nigeria Plc Enugu. It is hoped  that whatever happened in this bank as regard to fraud also applied to the rest of the banks in Nigeria.

1.1     STATEMENT OF THE PROBLEM

The increasing wave fraud in the banking industry is quite alarming and sums of money lost as a result are staggering. Bank fraud has created a lot of distrust between banks and their customers. The Nigerian Accountant, writing on bank failure, observed that, “The history frame work of bank failure, will not be complete without adequate attention paid to the activities of fraudulent members of the board and staff” This express the havoc fraud is capable of causing in the banking industry.

The methods used in perpetrating fraud are acquiring nuclear sophistication day – by – day. While the management of banks are busy devising means of checking fraud, the fraudulent staff are also busy devising new methods of duping the banks. Fraud leads to an undesired loss of public funds and puts the integrity of the management of the affected banks in doubts. Every incidence of fraud chops off some degree of public confidence in the banking industry and slows down banking habit in Nigeria.

In the light of this, if nothing positive is done to check these incidence early enough, fraud could lead to the total crippling of the economy as a whole and the liquidation of the banking industry in particular. The policy Magazine, writing on “Building public confidence in banks 2” expresses that banks should build a reputation which can encourage their customers both existing and prospective, to transact with enthusiasm instead of  reluctance. They should shine to rebuild the confidence of the public by satisfying its wants both functionally and psychological.

        This research work is as a result concentrates purely on the bank industry with a view to providing suitable recommendation that will help in fraud prevention or minimization.

1.2     PURPOSE OF THE STUDY

The purpose of this research work is to carry out an empirical examination of fraud in the Nigeria banking industry with special reference to First Bank of Nigeria Plc. The research having identified some of the problems on fraud in the banking industry like insecurity of customer’s deprivation of funds for development and upliftment  of living standards, loss of public confidence on banks etc. The main objectives amongst others for carrying out this research work includes:

a.                 To determine if fraud exist in the Nigerian banking industry.

b.                 To determine the causes of fraud in the banks in Nigeria

c.                  To determine the effects of fraud in the operations of banks in Nigeria.

d.                 To determine if there are legal loopholes system that aid fraud and

e.                  To proffer preventive measures and strategies against fraud so as to salvage the Nigeria banking industry as regards fraud menace.

1.3     SIGNIFICANCE OF THE STUDY

It is an undebtable fact that fraud can run the confidence people have in the banking industry. This research work is very relevant in one way or the other to the Nigerian banking industry in general and particularly to the First Bank of Nigeria PLC.

Moreover, banks in Nigeria will derive great assistance from this research work in detecting fraud in their business and subsequently prevent or minimize them.

This they can achieve by adopting and implementing the various suggestions and recommendations made in this study in their control systems.

Also, this study will help readers and those may be interested in carrying out other study serving as a reference point from time to time.

Conclusively, it cannot be over emphasized the fact that if banks were all reduce the incidence of fraud in their operations to the lowest level they will be operating on a more profitable ground. The public confidence on banks will once more be restored and economic revival achieved.

1.4     STATEMENT OF HYPOTHESIS

In carrying out this research work, the following hypothesis were formulated to enable the research test the validity of the information to be obtained.

Null hypothesis

Ho:    Nigeria banking industry has not experienced many cases of fraudulent practices.

Hi:     Nigeria Banking industry has experienced many cases of fraudulent practices.

Ho:    The rate of fraudulent mal-practices in the Nigeria banking industry has been minimized.

1.5     SCOPE AND LIMITATIONS OF THE STUDY

This research work would have been to investigate fraud in all the commercial banks, people’s bank, Merchant Banks, Development Banks and Community Banks in the country for the sake of excellence and achievement of best possible results. As this would be a large population and likely to pose some problems, the research work is therefore centered on one bank of interest. The First Bank of Nigeria Plc. Representing the commercial banks.

The researcher encounter the following problems;

a.                 Financial constraint: Finance to a large extent determines the success which a venture can be. For this research work, financial constraint was responsible for the inability to distribute questionnaires throughout the branches of the bank and so reliance was made on the information at their main office.

b.                 The less than fair co-operation on the part of the bank official in supplying the needed information and data posed its own problem. Most of the bank managers refused to offer past records on fraud or the amount involved. They bluntly refused saying they are confidential.

i.                   Other bank will know their weakness

ii.                 There customers both present and the investors would lose confidence on them.

iii.              Other banks would use this fraud element against their operations. In spite of the assurance of strict confidence of any information or data supplied and that it would be use purely for academic pursuit, they still refused. This made the researcher to give up the idea of asking questions which the manager regarded as sensitive. In addition to this, in framing the questionnaire, the researcher avoid such direct questions that require exact figures.

c.                  Another question was the not on seat and too busy to attend to you syndromes which the researcher suffered. The researcher made several visits, and at times, even on appointment suffered this problem.

d.                 Distance and time: The bank’s branches were not near and the academic period was too short. And period was split between the class work and research work which compounded the problem. The researcher in the face of these problem was able to make the work sound and reliable.

1.6     DEFINITION OF TERMS

The meanings and interpretations given to most of the term used in this research work are defined below 

1 Bank : this is the store _house of a nations economy;  a place where money and other valuable are kept for safe custody. 

Ii Commercial Bank: There are bank that accept deposits, provides commercial credits to their customers which involves the creation, distribution and transfer of deposits.

Iii   Internal  control system: This is the whole system of control, financial and other  wise, established by the management in order to  carry on the business of the enterprise in an order and efficient  manner, ensure  adherence to management  policies, safe guard  the  completeness and accuracy of the records