ABSTRACT
This study Depositors’ perception of insiders related Fraud and its impact on commercial bank performance in Nigeria (A study of First Bank Plc and Access Bank Plc. Three (3) Research questions were formulated while two null hypotheses was also raised. Survey research design was used for the study. The population of the study comprised One hundred (100) staff of Guaranty Trust Bank and Access Bank Plc, Abeokuta, Ogun State. One hundred (100) questionnaires were distributed and seventy (70) were dully filled and recovered from the respondents. Frequencies and percentages were used to analyze the bio-data of respondents. Frequency tables, mean, standard deviation and grand mean were used to analyze the research questions. Chi-square statistic was used to test the hypothesis. It was found out that a correlation exists between frauds and bank profits in Nigerian banking industry. The correlation that exists in the study corresponds with Offiong, Udoka and Ibor (2016) analyzed banking sector frauds in Nigeria from 1994 to 2013. The study found that the problems of Nigerian banking sector frauds require strong inter-agency collaboration, public education and cross border cooperation to accomplish sustainable success. Having highlighted the problems and shortcomings of the Depositors’ Perception of Insiders related Fraud and its Impact on Commercial Bank Performance in Nigeria, this study recommends that bank management should strengthen their internal control system and more specifically ensuring thorough scrutiny of personal character before employing them. This is due to the fact that most fraud cases in banks are often spearheaded by staffs. In addition, monitoring transactions involving huge amounts through Bank Verification Number and Central Bank of Nigeria whistle blowing policy would also be a good measure to checkmate frauds.
TABLE
OF CONTENT
Title
Page i
Certification ii
Dedication iii
Acknowledgement iv
Table of
Content v
Abstract vi
CHAPTER
ONE: Introduction
1.1
Background
to the study 1
1.2
Statement
of problem 5
1.3
Aim
and Objectives of the study 6
1.4
Research
Questions 7
1.5
Research
Hypothesis 7
1.6
Significance
of the Study 7
1.7
Scope
of the Study 8
1.8
Operational
Definition of terms 8
CHAPTER
TWO: Literature
Review
2.0
Introduction 9
2.1
Conceptual Framework 9
2.1.1 Concept of Fraud 9
2.1.2 Types
Fraud and Bank Profit and Mobilized Credits 17
2.1.4 Fraud
in the Nigeria Financial Institution from the fraudster perspective 16
2.1.5 Causes of bank in the
Nigerian banking industry 18
2.1.6 Prevention and control of
Fraud in Nigerian Institution 23
2.1.7
Management
of Fraud 24
2.1.8
Growth of Bank Fraud in Nigerian
Banking Industry 26
2.2
Theoretical Framework 27
2.3
Empirical Review 31
CHAPTER
THREE: Research Methodology
3.0 Introduction 34
3.1 Research
design 34
3.2 Population
of the study 34
3.3 Sample
Size and Sampling Technique 34
3.4 Research
Instrument 35
3.5 Sources
of Data Collection 35
3.6 Method
of Data Analysis 35
3.7 Validity
of Research Instrument 36
3.8 Reliability
of Research Instrument 36
CHAPTER
FOUR: Data Presentation and Analysis
4.0
Introduction 37
4.1
Analysis of Demographic Data 37
4.2 Analysis
of Research Questions 39
4.3 Testing
For Hypothesis 41
4.4 Discussion
of Findings 45
CHAPTER FIVE: Summary
of Findings, Conclusion and Recommendations
5.1 Summary
of Findings 46
5.2 Conclusion 47
5.3 Recommendations 47
5.4 Limitation
of the Study ] 47
References
49
CHAPTER
ONE
INTRODUCTION
1.1
Background
of the Study
In
spite of the fact that banking industry is the most controlled and regulated
industry in Nigeria, fraud has continued to rear its ugly head in the industry.
It has eaten deep into every units and department in the banking sector. The
level of fraud in the present day Nigeria has assumed an epidemic dimension.
Nigeria with all its human and natural resources, tethers on brink of failure
because of fraud. Much of what we do is “cutting leaves” instead of dealing
with the root problem. Generally, fraud takes it root from human heart. It is
an axiom that the heart of man is deceitful above all things and is desperately
wicked. Olisabu (2001), state that the banking sector has become one of the
most critical sectors and commanding heights of the economy with wide
implications on the level and direction of economic growth and transformation
and on such sensitive issues 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 called into question in view of incessant frauds and accounting
scandals. Oseni (2006) opined that 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 views of Oseni
and Idolo (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.
Fraud
is the number one enemy of the business world. No entity or work is immune from
it (Nwankwo, 2001). The fear is now widespread that the increasing wave of
fraud in the recent years, if not prevented might pose certain threats to
economy and political stability and the survival of financial institution and
the performance of the industry as a whole. Nwachukwu (2005) wrote that more
money is stolen in or through banks by means of fraud committed with pen than
through other means. Fraud may take the form of; theft of inventory assets,
misuse of expense account, secret commission and bribery, false invoicing,
electronic and telecommunication fraud, unauthorized use of information, cheque
forgery, cheque clone, false financial statements, and so on, but whichever
form it takes, the fundamental point is that the banking industry falls victim
to fraudulent acts suffers and bears the brunt.
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 (John, 2022).
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 is ‘deceit or trick deliberately practiced in order to gain
some advantages dishonestly’. 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, money laundering
fraud, computer fraud, loans fraud and the likes.
Banks all over the world have through
their unique position in an economy, contributed immensely to the economic
growth and development of a nation. The significance of the banking sector in
any country stems from its role of financial mobilization from surplus to
deficit units of any economy, 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.
As
intermediaries to both suppliers and users of funds, banks are effectively
situated in a continuum that determines the pulse of the economy. 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
also on some economic variables such as the rate of employment and inflation
which directly affect the lives of the people. Worldwide, the ability or
inability of banks to successfully fulfill their role as intermediaries has
been a central issue in the financial crisis that has been witnessed so far.
Diamond
(2004) posits that a special feature of banking activities is to act as
delegated monitors of borrowers on behalf of the ultimate lenders (depositors).
In this special relationship with depositors and borrowers, banks need to
secure the trust and confidence of their numerous clients. Though this requires
safe and sound banking practices, it is not always the case as bank failures in
different countries have come to prove. The failure of banks to adequately
fulfill their role arises from the several risks that they are exposed to; many
of which are not properly managed. One of such risks which is increasingly
becoming a source of worry is, the banking risk associated with incessant
frauds and accounting scandals.
Fraud,
according to Nwankwo (1991) arises when a person/organization in position of
trust and responsibility deliberately breaks the rules for personal or
corporate gains at the expense of public interest. It is a global malaise that
spares no institution and economy. Bank fraud on the other hand is the use of
illegal means to obtain money and/or assets held or owned by financial
institutions (Nwaeze, 2008). The increasing wave of fraud in financial
institutions in recent years pose serious threats to the stability and survival
of financial sector and banks in particular (Usman & Shah, 2013). Akinyomi
(2012) opined that fraud if not properly checked, might result in huge
financial losses to banks and their customers, depletion of shareholders’ funds
and banks’ capital base as well as loss of public confidence in banks. Also,
the incidence of frauds and forgeries could, in extreme cases, lead to the
closure of banks (Fatoki, 2015). Many of the distressed banks in Nigeria today
had suffered a great deal from frauds and insider credit abuses (Nwaeze, 2008).
The
Nigeria Deposit Insurance Corporation in its 2015 annual report and statement
of accounts for the banking sector, stated that a total of 12,279 reported
fraud cases for 2015 represented an increase of 15.71 per cent over the 10,612
recorded in 2014 (Ebhodaghe, 2015). Adebisi (2009) reported that the increase
in the incidence of frauds and the relatively large amounts involved poses
great challenges to the survival and viability of the financial institutions.
The foregoing therefore makes it incumbent on stakeholders to declare an
emergency on the malaise of fraud in the banking industry in Nigeria
Olufidipe
(2014) defined fraud as “deceit or trickery deliberately practiced in order to
gain some advantages dishonestly”; According to Boniface (2001), fraud is
described as „any premeditated act of criminal deceit, trickery or
falsification by a person or group of persons with the intention of altering
facts in order to obtain undue personal monetary advantage‟; Idowu (2009) also
sees fraud as a deliberate falsification, camouflage, or exclusion of the truth
for the purpose of dishonesty/stage management to the financial damage of an
individual or an organization. In a nutshell, fraud, which literarily means a
conscious and deliberate action by a person or group of persons with the
intention of altering the truth or fact for selfish personal gain, is now by
far the single most veritable threat to the entire banking industry.
Onyeogocha
(2001) attributed it to insider abuses and even board tussles. The NDIC report
(2001), showed the actual loss to have exceeded the expected provisions for
only N1.3 billion. Such an amount would have been enough to set up a least
eleven micro finance banks in the current period. Forgeries currently
constitute the greatest challenge facing the industry. Also the number of
insiders (staff) who connive with outsiders to perpetuate the act is alarming.
Equally worrisome is the rise in the number of top management staff that have
either been indicted or accused of engaging in bank fraud. Against these
backgrounds, the main purpose of this study is to examine the factors that
contribute to frauds, to evaluate the impact of internal control system in
combating fraud in the banking industry, determine the effectiveness of the
activities of an auditor and also the way by which it can be is prevented and
controlled
1.2 Statement of the Problem
The
larger society expects greater accountability, fairness, transparency and
effective intermediation from banks, ensuring that they carry out their
responsibilities with sincerity of purpose and unquestionable integrity with
respect to their operations as a means towards earning public trust and
goodwill. The banking business has become more complex with the development in
the field of Information and Communication Technology (ICT) which has changed
the nature of bank fraud and fraudulent practices. Berney (2008) observed that
customers rely heavily on the web for their banking business which leads to an
increase in the number of online transactions.
Gates,
Jacob and Malphrus (2009) assert that the internet provides fraudsters with
more opportunities to attack customers who are not physically present on the
web to authenticate transactions. In Nigeria, in spite of the banking
regulation and bank examination by the Central Bank of Nigeria (CBN), the
supervisory role of the Nigeria Deposit Insurance Corporation (NDIC), and The
Chartered Institute of Bankers of Nigeria (CIBN), there is still a growing
concern about fraud and other unethical practices in the banking industry.
Evidence from the NDIC Report (2008) revealed that the report of the
examinations and special investigations from the banks were still bedeviled
with problems of fraud, weak board and management oversight; inaccurate
financial reporting; poor book-keeping practices; non-performing
insider-related credits; declining asset quality and attendant large
provisioning requirements; inadequate debt recovery; non-compliance with
banking laws, rules and regulations; and significant exposure to the capital
market through share and margin loans.
Okpara (2009) found that one of the factors that
impacted the most on the performance of the banking system in Nigeria was
fraudulent practices. This study thus, examines the depositors’ perception of
insider’s related fraud and its impact on commercial bank performance in
Nigeria. (A case study of Access and Guaranty Trust Bank, Abeokuta, Ogun State)
1.3 Aims and Objective of Study
The main objective of the study is to
examine the effect of depositor’s perception of insider’s related fraud and its
impact on commercial bank performance in Nigeria.
The specific objectives were to:-
i.
Ascertain the effect of fraud on profit in Nigeria banking industry.
ii.
Evaluate the effect of fraud on assets in Nigeria banking industry.
iii. Determine the effect of fraud on bank
deposits in Nigeria banking industry
1.4 Research Question
The study aim to give answers to the
following questions
1. What is the effect of fraud on
profit in Nigeria Banks?
2. What is the problem of fraud on
Nigeria Banks assets?
3.
What are the effects of frauds in bank deposits in Nigeria Bank industry?
1.5 Research Hypothesis
The following hypotheses were
formulated for the study:
Hypothesis
1
Ho:
There is no significant relationship between Frauds and Bank profits in
Nigerian banking industry.
H1:
There is significant Frauds and Bank profits in Nigerian banking industry.
Hypothesis
2
Ho.
There is no significant effect of fraud on assets in Nigerian banking industry.
H1:
There is significant effect of fraud on assets in Nigeria Banking industry
1.6 Significance of the Study
The
significance of the study is borne out of the fact that the empirical results
would shed light on how fraudulent activities of individuals and organizations
(insiders and outsiders) affect bank performance and provide basis to make
policy recommendations. The study also seeks to improve on the methodology and
findings of past researchers by conducting some statistical tests of
significance. Furthermore, the study will be of value and very useful to all
categories of bank managers, financial information users such as existing and
potential shareholders, creditors and fund providers and the relevant
government agencies. Besides, researchers and students in the field of banking
and finance who want to know more about fraud, its causes and possible ways of
preventing it will also find the study beneficial.
1.7 Scope of the Study
The
scope of this study will focus on the staff and customers First Bank Nigeria,
Plc, Abeokuta Branch, Ogun State
1.8 Operational Definition of Terms
·
Fraud:
This arises when a person/organization in position of trust and responsibility
deliberately breaks the rules for personal or corporate gains at the expense of
public interest. It is a global malaise that spares no institution and economy.
·
Bank
fraud: is the use of illegal means to obtain money
and/or assets held or owned by financial institutions.
·
Perception:
is the organization,
identification, and interpretation of sensory information in order to represent and understand the presented
information or environment.
·
Performance: performance as the process
of quantifying the efficiency and effectiveness of organization’s action. It is
the process of assessing the progress made (actual) towards achieving
predetermined set goals. It involves the establishment of organizational goals,
monitoring of progress towards the goals, and making necessary modifications to
attaining those goals in an effective and efficient way.
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