ABSTRACT
The
study is an empirical analysis of the impact of regulation and supervision on
the activities of Nigerian Banks with emphasis on the role of the Central bank
of Nigeria
and the Nigerian Deposit Insurance Corporation.
It evaluates the roles and contributions of CBN and NDIC to the Nigerian
banking sector. Extensive field survey
and library research was carried out and data collected were subjected to
thorough analysis.
The
analysis is shows that the supervisory and regulatory framework of the Central
bank of Nigeria
and the Nigerian deposit Insurance Corporation are not sufficient into
guarantee effective banking practices in Nigeria. Other findings from the study include the
need to increase the maximum insurance coverage due to the effect of inflation
and the persistent fall in the value of the Naira, the need to disclose
transactions continuously to ensure financial prudence through regular
supervision and monitoring of the financial health of local banks with the aid
of the “CAMEL ratings and other supervisory framework.
There
is need to also increase the awareness of banking activities within the general
populace through a deliberate integration process aimed at demystifying certain
inherent perceptions of the public with respect to distress and the role of the
Nigerian deposit Insurance Corporation (NDIC).
Moreover, the public, investors and depositors were not fully aware of
the activities of NDIC and CBN in liquidating and revocation of banks’ licenses
due to the ineffectiveness of the enlightenment programmes used in carrying out
the awareness.
The
study focuses also on the consolidation agenda of the Central Bank of Nigeria and the
processes, prospect and the challenges of consolidation. A questionnaire and telephone based research
was adopted for the study and the data collated was tested using the chi-square
analysis and supported by fundamental evidence from the database of the
regulatory authorities.
Finally,
the study offered suggestion as to how the problems so identified could be
ameliorated.
TABLE OF CONTENTS
CHAPTER ONE
1.1 Introduction
1.2 Statement of problem
1.3 Objectives of the study
1.4 Statement of research question
1.5 Research hypothesis
1.6 Research methodology
1.7 Scope of the study
1.8 Justification of the study
1.9 Organization of the study
CHAPTER TWO:
LITERATURE REVIEW
2.0 Introduction
2.1 Definitions of bank
2.2 Meaning and definitions of fraud
2.3 Criminal motivation in fraud and white
collar crime
2.3.1 Psychological causes
2.3.2 Cultural causes
2.3.3 Socially acquired traits
2.4 Causes of fraud
2.4.1 Motivational elements
2.4.2 Situational elements
2.5 Factors influencing fraud
2.5.1 Institutional factors
2.5.2 Organizational factor
2.6 People involved in bank fraud
2.6.1 Fraudsters within the bank
2.6.2 Frauds committed by outsiders
2.6.3 Fraud perpetrated through the combined efforts
of member(s) of bank staff and outsider(s)
2.7 Types of fraud
2.7.1 Cashiering fraud
2.7.2 Cheque frauds
2.7.3 Clearing fraud
2.7.4 Banker’s committee report on cheque frauds
2.7.5 Frauds involving manipulation of bank
documents
CHAPTER THREE: RESEARCH
METHODOLOGY
3.0 Introduction
3.1 Research design
3.1.1 Roles of the Central Bank of Nigeria
3.1.2 The role of the Nigerian Deposit Insurance Corporation
(NDIC)
3.2 Sources of data and instrument of data
collection
3.2.1 Primary data
3.2.2 Secondary data
3.3 Determination of sample size
3.4 Method of data analysis
CHAPTER FOUR:
DATA PRESENTATION AND ANALYSIS
4.1 Data presentation
4.2 Data analysis
4.2.1 Respondents assessment of the impact of
regulation and supervision on Nigerian banks
4.3 Hypothesis testing
CHAPTER FIVE:
SUMMARY, CONCLUSION AND
RECOMMENDATION
5.1 Summary
5.2 Conclusion
5.3 Recommendations
Bibliography
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
TO THE STUDY
An
advance-free fraud is a confidence trick in which the target is persuaded to
advance sums of money in the hope of realizing a significantly larger gain. Among
the variations on this type of scam, are the Nigerian Letter (also called the
419 fraud, Nigerian scam, Nigerian bank scam, or Nigerian money offer, the
Spanish Prisoner, the Black money scam as well as Russian/Ukrainian scam (also
extremely widespread, though far less popular than the former). Both the so-called Russian and Nigerian scams
stand for wholly dissimilar organized crime traditions, they therefore tend to
use altogether different breeds of approaches.
The
419 scam originated in the early 1980s as the oil-based Nigerian economy
declined. Several unemployed university
students first used this scam as a means of manipulating business visitors
interested in shady deals in the Nigerian oil sector before targeting
businessmen in the west, and later the wider population. Scammers in the early-to-mid 1990s targeted companies,
sending scam messages via letter, fax, or telex. The spread of email and easy access to
email-harvesting software significantly lowered the cost of sending scam
letters by utilizing the internet. In
the 2000s, the 419 scam has spurred imitations from other locations in Africa,
Asia and Eastern Europe, and more recently, from North America, Western Europe
(mainly UK) and Australia.
The
number ‘419’ refers to the article of the Nigerian criminal code (part of
chapter 38: “obtaining property by false pretences; cheating”) dealing with
fraud. The American Dialect Society has
traced the term “419 fraud” back to 1992.
The
advance-free fraud is similar to a much older scam known as the Spanish
Prisoner scam in which the trickster would tell the scam victim that a
(fictitious) rich prisoner had promised to share (non-existent) treasure with
the victim if the latter would send money to bribe the prison guards.
Insa
Nolte, a lecturer of University
of Birmingham’s African
Studies department, stated that “the availability of e-mail helped to transform
a local form of fraud into one of Nigeria’s most important export
industries”.
Embassies
and other organizations warn visitors to various countries about 419. Countries in West Africa
with warnings cited include Nigeria,
Ghana,
Benin,
Cote d’Ivoire
(Ivory Coast),
Togo,
Senegal
and Burkina Faso. Countries outside of West
Africa with 419 warnings cited include South Africa, Spain and the Netherlands.
This
scam usually begins with a letter or e-mail purportedly sent to a selected
recipient but actually sent to many making an offer that will ultimately result
in a large payoff for the intended victim.
The e-mail’s subject line often says something like “from the desk of
Mr. (Name)” “Your assistance is needed”, and so on. The details vary, but the usual story is that
a person, often a government or bank employee, knows of a large amount of unclaimed
money or gold which he cannot access directly, usually because he has no right
to it. such people, who may be real but
impersonated people or fictitious characters played by the scammer, could
include the wife or son of a deposed African or Indonesian leader or dictator
who has amassed a stolen fortune, or a bank employee who knows of a terminally
ill wealthy person with no relatives or a wealthy foreigner who had deposited
money in the bank just before dying in a plane crash (leaving no will or known
next of kin), a U.S solider who has stumbled upon a hidden cache of gold in
Iraq, a business being audited by the government, a disgruntled worker or corrupt
government official who as embezzled funds, a refugee, and similar
characters. The money could be in the
form of gold bullion, gold dust, money in a bank account, so-called “blood
diamonds”, a series of cheques or bank drafts, and so forth. The sums involved are usually in the millions
of dollars, and the investor is promised a large share, typically ten to forty
percent, if they will assist the scam character in retrieving the money. Whilst the vast majority of recipients do not
respond to these emails, a very small percentage do, enough to make the fraud
worthwhile as many millions of messages can be sent. Invariably sums of money which are
substantial, but very much smaller than the potential profits, are said to be
required in advance for bribes, fees, etc – this is the money being stolen from
the victim, who things he is investing to make a huge profit.
Many
operations are professionally organized in Nigeria, with offices, working fax
numbers, and often contacts at government offices. The victim who attempts to research the background
of the offer will often find that all pieces fit perfectly together. Such scammers can often lure wealthy investors,
investment groups, or other business entities into scams resulting in
multi-million dollar lose. However, many
scammers are part of less organized gangs or are operating independently; such
scammers have reduced access to the above connections and thus have little
success with wealthier investors or business entities attempting to research
them, but are still convincing to middle-class individuals and small businesses,
and can bilk hundreds of thousands of dollars from such victims.
If
the victims agree to the deal, the other side will often send one or more false
documents bearing official government stamps, and seals. 419 scammers often mention false addresses
and use photographs taken from the internet or from magazines to falsely represent
themselves. Often a photograph used by a
scammer is not of any person involved in the scheme. Multiple ”people” involved in schemes are
fictitious; the author of the “WEST AFRICAN ADVCNE FEE SCAMS” article posted on
the website of the Embassy of the United States in Abidjan, Cote d’Ivoire
believes that in many cases one person controls many fictitious persons used in
scams.
1.2 STATEMENT OF PROBLEM
Commercial
and merchant banks have lived and relied extensively and entirely on the
process of gathering profit, expansion and gathering appreciable returns for
the shareholders.
The
realization of these objectives seems to depend on a host of factors like the
introduction of modern technology, dedicated and efficient management highly
skilled and experienced manpower, adequate knowledge and understanding of the
economic system as well as the ability to effectively compete with other
competitors in the banking business.
However,
these objectives have not been completely achieved. The achievement has been more of delusion
than reality. The constraints impending
the realization of these objectives are myriad in nature, varying from the
Central Bank of Nigeria’s
tight fiscal and monetary policies to incompetence of bank’s management and
staff and staff force. In between these
two extremes is a social problem called “FRAUD” a social parasite which is now
fast cutting deep into the threshold of existence and survival of most Nigerian
banks.
The
problem of fraud in Nigerian bank is adversely affecting the stability of the
country’s financial system and this has continued to constitute a source of
concern to most economic analysts and astute financial gums in the business
world. The major motivation for fraud as
we all know is financial gain, the “get-rich-quick” syndromes has hinder the entire
facet of Nigerian economic.
Most
banks executives detest the news of fraud in their respective banks. In fact such news often sends disintegrating
sock waves through their body system. It
also reveals a lapse in the bans, security and decision or operation
process. It may not be easy to quantify
loss by banks to fraudsters. In view of
this realization a large sum of money are set out in the budgets of banks every
year for the purpose of combating fraud to the detriment of further development
of bank staff.
1.3 OBJECTIVES OF THE STUDY
The
primary objective of this research is to find practical means of minimizing
incidence of fraud in Nigerian banks.
Hence to achieve this objective, the following secondary objectives are
to be pursued:
i.
To determine the magnitude and
frequency of fraud in banks
ii.
To identify the causes of fraud in
banks
iii.
To identify the various types of fraud
and means employed in defrauding bank
iv.
To recommend measures for reducing the
incidence of bank fraud.
The
study will also try to examine the party that bears the loss in case of an
occurrence of fraud. What provision does
the legal system make as a deterrent to fraudsters? From the study, the research will also try to
identify the roles which banks and the society at large should play in brining
fraud to its lowest ebb.
1.4 STATEMENT OF RESEARCH QUESTION
-
Advanced free fraud hinders a bank
from attaining its goal within the stipulated period
-
Fraud cases appeared to be
considerably lower in merchant banks than in commercial banks why?
-
Frauds committed by senior and
management staff are usually few in number but they are big time fraud which
always reflect high level sophisticated techniques in carrying them out.
-
Impact of technology has also been
identified as another organizational factors with the introduction of advanced
technology in telex and electronic funds transfer.
1.5 RESEARCH HYPOTHESIS
The
researcher adopted the Chi-Square goodness-of-fit test to test the hypothesis.
The Chi-Square statistics formula is given as
X2 = Summation of (Oi- Ei)2
Ei
Where Oi = Observed
frequency
Ei = expected
frequency
The degree of freedom
n = 5, V = 5-1=4
Level of significance
= 5% or 0.05
Note: Ei = total frequency 450 divided by 5 = 90
HYPOTHESIS 1
Ho: The supervisory and regulatory functions of the
Central Bank (CBN) and the NDIC have been effective in curtailing distress in
the Nigerian banking system
H1:
The supervisory and regulatory functions of the CBN and the NDIC have not been
effective in curtailing distress in the Nigerian banking system
1.6 RESEARCH METHODOLOGY
This involves the use
of some statistical tools such as percentages, mean score and Chi-square test
in order to make comparison, test the hypotheses and draw conclusions. Percentages is a statistical tool that uses 100
as its base. It is simple and makes comparison easier – percentages are used in
describing relationship. Chi-square test
provides a means of comparing a set of observed frequencies with a set of
expected frequencies. The test statistic
for testing hypothesis is based on this quantity.
Chi-Square
= X2 = S(O – E)2
E
1.7 SCOPE OF THE STUDY
The
research work covers only Nigeria
banks within the period of 2000 and 2007.
Fraud occurs in almost every sector of the Nigeria economy but for the purpose
of this study, discussion will be restricted basically to the banking
industry. Therefore, in order to attain
the objectives of this research aspects of fraud in banking operation,
information obtained is entrenched within the scope of data on number of fraud
cases perpetrated in each bank, the different types of fraud, the amount of
loss to banks and to customers, the category of person involved in fraud, the
period of concealment and the incidence of collusion.
Furthermore,
since the only latest source of compiled, accurate, attested and authentic data
on fraud in Nigerian banks is that published annually by the Nigeria Deposit
Insurance Corporation (NDIC). The
secondary data will be good assistance for the study and the results shall be
heavily relied on for the purpose for the analysis of the research findings.
1.8 JUSTIFICATION OF THE STUDY
The
banks are vital to the development of any nation. They are in fact pivot of a nation’s economic
growth. The great resources at the
command of the Nigerian banking sectors make it a vital factor in the process
of restructuring and diversifying the productive base of the economy to reduce
dependence on oil sector.
Nevertheless,
the performance of the banking industry has been at a sub-optimal level. This is due to an array of problems of which
the issue of fraud is evil of the most intractable and monumental. The magnitude of these problems and
implication for the industry has inspired this research on fraud in banks.
Fraudsters can
be found in and outside any organization and frauds are perpetrated
independently of either of these two categories. However, appreciable proportion of frauds in
Nigerian banks today is committed through the joint efforts of both outsiders
and banks staff. This dual effort has
made the problems of fraud appear more of a puzzle. Some top executive members of banks who have
assessed to information also indulge in this ungodly act.
This study is
therefore necessary for the purpose of exposing the strategies and tactics of
fraudsters.
1.9 ORGANIZATION
OF THE STUDY
The research
work is carefully structured into five chapters. Chapter one will focus on introduction to the
study, statement of research problem, objectives of the study, statement of
research
questions, scope of the study, and justification of the study.
Chapter two will
center on the literature review on the effect of advanced free fraud in banking
system in Nigeria.
The third
chapter considers the research methodology.
Chapter four
will the data presentation and the analysis of the findings.
Finally, the
fifth chapter is the summary, recommendation and conclusion
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