ABSTRACT
The
problem of automated teller machine (ATM) fraud is global in nature and its
consequences on bank patronage should be of concern to the stakeholders in
banks. This paper investigates the dimensions of ATM fraud in Nigeria and
proffer solutions that will mitigate the ATM fraud in Nigeria banking system.
The paper employs both primary and secondary data to investigate the ATM frauds
in Nigeria banks. The chi-square statistical technique was used to analyze the
data and test the hypothesis raised. The paper concludes that both bank
customers and bankers have a strong role to play in stopping the perpetrators
of ATM frauds in the banks.
Card
jamming, shoulder surfing and stolen ATM cards constitutes 65.2% ATM frauds in
Nigeria. This fraud is usually perpetrated by the lower cadre. It involves
theft, misappropriation or embezzlement of company’s fund and other assess for
their own selfish interest.
Fraud is
perhaps the most fatal of all the risk confronting banks. The enormity of bank
frauds in Nigeria can be inferred from its value, volume and actual loss. A
good numbers of bank frauds never get reported to the appropriate authorities
rather they are suppressed because of the personalities involved or because of
concern over the negative image effect that the disclosure may cause if
information may lose confidence in the banks and this could cause a major
setback in the growth of the bank in particular.
Fraud
leads to loss of money, which belongs either to the banks or customers. Such
losses may be absorbed by the profits for the affected trading and this
consequently reduces the amount of profits which would have been available for
distribution to shareholders. Losses of fraud which are absorbed to equity
capital of the banks impairs that bank financial health and constraints its
ability to extend loans and advances for profitable operations. In existence
case rampant and large incidents of fraud could lead to a bank failure. Fraud
can increase the operating cost of installing the necessary machinery for its
prevention, detection, valuable time to safeguarding it assets from fraudulent
men distract management. Overall the unproductive diversions of resources
always reduce outputs and profits which in turn could retard the growth of the
bank.
It
automatically leads to loss of confidence in the bank by customers and
potential customers of the bank and those seriously discourage banking habits
in Nigeria.
There
had been several incidents of banks going distressed due to manipulative and
fraudulent activities of management and staff of the bank. When this happens
innocent depositors lose their hard earned savings coupled with ineffective
regulatory policies of the central bank prior to the recapitalization of the
Charles Soludo administration .It also lead to a diminishing effect on the
asset quality of banks. The problem is more dangerous when compounded by
insiders’ loan abuses.
Indeed
the first generation banks by NDIC was largely a consequences of fraud
perpetrated through insiders loan abuses. If this problem is not adequately
handled it could lead to distress and bank failures.
TABLE OF
CONTENTS
CHAPTER
ONE
1.1 Introduction
1.2 Background
to the Study
1.3 Statement
of the Research Problem
1.4 Objectives
of the Study
1.5 Research
Questions
1.6 Research
Hypothesis
1.7 Research
Methodology
1.8 Significance
of Study
1.9 Scope
& Limitation of Study
1.10 Definition
of Terms
CHAPTER
TWO
2.1 Literature
Review
2.2 Introduction
2.3 Origin
of Fraud
2.4 Causes
of Fraud
2.5 Solution
to the Problem
2.6 Effects
of Fraud on Nigerian Banks
2.7 Trends
in Nigerian Banking Sector on Liquidity Regulation
2.8 Empirical
Studies
2.9 Theoretical
Background
2.10 Hypothesis
2.11 Model
Specification
2.12 Econometric
Analysis & Results. Estimation Results
2.13 Determinants
of Banking Sector
2.14 Impact
of Banking Crisis On Banking Sector Liquidity
2.15 Implementation
CHAPTER
THREE
3.1 Methodology
3.2
Analysis & Discussion
3.3 Source
of Data
CHAPTER
FOUR
4.0 Data
Presentation, Analysis and Interpretation
4.1 Introduction
4.2 Method
of Estimation of Analysis
4.3 Presentation
and Analysis on Data According To
Research
Hypothesis and Discussion of Findings
CHAPTER
FIVE
5.1 Summary,
Conclusion and Recommendation
5.2 Conclusion
5.3 Recommendation
Based On the Conclusion
5.4 Bibliography
REFERENCES
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND TO THE STUDY
Fraud
can be seen as the intentional misrepresentation, concealment or omission of
the truth for the purpose of deception, manipulation to the financial detriment
of individual or organization (such as bank) which also include embezzlement,
theft or any attempt to steal or unlawfully obtain or misuse or harm the asset
of the bank.(Adeduro 2008 and Bostley and Drover 2002).
Fraud
and management have been the precipitating factor in the distress of banks and
as much as various measure have been taken to minimize the incidence of fraud,
it still rises by the because fraudster always device tactical ways of
committing frauds. This has become a point of great attention in the banking
industry or peculiar to Nigeria alone, high incidence of fraud within the
banking industry has become a problem to which solution must be provided in
view of the large sums of money involved and its adverse effect and
implications on the economy.
Fraud
in its effects reduces the asset and increase the liability of any company, in
the case of banks , this may result in the loss of potential customers or
crisis of confidence of banking public
and on the long run and up in another failed bank situation.
Fraud
is one of the numerous enemies of business world, no company is immune to it,
it is in all works of life in government, the export trade, shipping
transaction, banking, insurance and everywhere. Special organization have been
formed to combat it and Interpol (international police) tries to deal with at
the international level but has not and cannot be eradicated (Nwankwo2001)fraud
is a universal phenomenon which has been in existence for so long , its
magnitude can not be known for sure because most of it is undiscovered or undetected
and not all that is detected is published .It is a known fact that no area of
banking system is immured to fraudsters not even the security team designed to
prevent it.Its management has become a central point in banking like management
of risk of the above facts.
The
computer crime research centre (2009) opined that the traditional and ancient
society of any monetary instrument and that the entire exchange of goods and
merchandise was managed by the barter system. The4 use of monetary instrument
as au nit of exchange replaced the barter system and money as sole purchasing power.
The modern contemporary era has replaced this traditional monetary instrument
from paper and metal based currency to plastic money in form of credit cards,
debit cards etc.
The
evolution of this various plastic money has resulted in the increasing use of
ATM all over the world. The use of ATM is not only safe but is also convenient.
The advantage of safety and convenience has unfortunately been lessened by frauds
that arepenetrated by plastic money.
The
case of settlement of bills such as electricity, school fees, phone bills,
insurance premium, travelling bills and even petrol bills has made the use of
plastic money more important in Nigeria banking system. The convenience and
safety that credit cards carry with their use has been instrumental in
increasing credit cards volumes and usage in Nigeria.
ATM
has also increased the propensity to fraudulent practices by the ATMs fraud perpetrators.
Banks have gone on ATM deployment, frenzy; some have adopted the strategy of
installing two ATMs per branch. Banks with large customer base continue to lead
the pack in number in number of transaction carried out. However, the number of
the transaction per ATM remains a significant measure of the efficiency of
these ATMs.Such transaction volumes can also be used to measure the kind of
returns banks are getting from the regular patronage of their ATMs.
1.3 STATEMENT
OF THE RESEARCH PROBLEM
It
is instructive to know that many operatives have different reasons for joining
various banks. Many have the intention of working for a short time in the
banking industry (get whatever they could and find another job that is less
demanding), some are in the industry because of their love for banking and all
its stands for. While majority are there to enrich themselves by fraudulent
means. Due to the upsurge of great viability in the banking sector, its dynamic
and fast expanding level of activities ,banks are faced with different kinds of
challenges, among which is trying to prevent various fraudulent intentions of
both staff and customers.
1.4OBJECTIVES OF THE STUDY
The
main aim of this study is to find a practical means of minimizing the incidence
of frauds in Nigeria Banks.While specific objectives are to:
I.
Identify various means employ in defrauding
banks.
II.
Determine the effect of fraud on the
banking system
III.
Determine the magnitude and frequency of
frauds in banks
IV.
Suggest measures of reducing the incidence
of bank fraud
V.
To examine the various ATM fraud in Nigeria
VI.
To provide solution that will mitigate the
banking industry
1.5 RESEARCH QUESTIONS
With
the aforementioned problems one cannot help but ask the following questions:
i)
Are the fraud detection systems in the
banks adequate and effective in preventing fraud?
ii)
Does the recruitment method have a direct
link with the rate of fraud in the banking sector?
iii)
Can the bank ever operate without the
incidence of fraud?
1.6 RESEARCH HYPOTHESIS
Hypothesis
One
HO: Poor salaries and inadequate working condition do
not induce bank staff to commit fraud.
H1: Poor salaries and inadequate working condition
induce bank staff to commit fraud.
Hypothesis
Two
HO: In adequate fraud detection system in operation in
banks cannot be the cause of frequent fraud in the industry.
H1: In adequate fraud detection system in operation in
banks is the cause of frequent fraud in the industry.
1.7
SIGNIFICANCE OF THE STUDY
Financial
institutions are challenged today by creative criminal using sophisticated
fraud tactics , evolving regulations and legislations, increasing pressure to
releases new and innovative products,and the imperative to enhance customer
experience to improve acquisition and retention .With customer –centric
enterprise = wide fraud prevention capabilities, Actimize enables those firms
to adequately addressthese challenges and to:
1
Enable end-to-end fraud coverage: Detect and
prevent fraud across banks channels and financial products and respond rapidly
to changing fraud and patterns and regulations, with a comprehensive set of
fraud management tools and capabilities.
2
Reduce financial Losses: Apply proven analytics detection logic
authoring and actimise breathe of global fraud expertise for superior detection
model performance .Monitor transaction in real times, allowing for targeted
interdiction to minimize and improve customers’ experience.
3
Increase productivity and lower operational
cost: Streamline fraud operations and support core fraud management functions
alert routing and prioritizations, workflow management,investigation and
operational performance report with intuitive web- based tools.
4
Enhance customers’ experiences: Enable risk based authentication methods and
customer.
1.8
SCOPE AND LIMITATIONS OF THE STUDY
This project work is examines
the impact of Bank Fraud and Distress on Banking Habit in Nigeria. The scope of
the project covers five banks in lagos state metropolis. The intended banks are
First bank, GTB, UBA, Union bank and Zenith Bank.
In
carrying out this research work, some difficulties were encountered which are
listed below:-
(a)
Unwillingness on the part of the management
to disclose information that might be of importance because the company
believes they are too vital to be released to a student researcher
(b)
Non-challant attitude of some staff in
answering relevant questions that pertains to the case study is one major
difficulties and constraints of the work.
(c)
Financial difficulties and time constraints
were major problems faced in the course of writing this project work.
1.10 DEFINITION
OF TERM
The
term defined below shall be used in this study accordingly for the purpose of
clarity.
a)
Banking:
Is one of the key drivers of any nation economy. Banking provides a safe
place to save excess cash, known as deposit. It also supplies liquidity to the
economy by loaning this money out to help business grow and to allow consumer
to purchase homes, cars and consumer
products,Banks primarily make money by charging higher interest rates on their
loans then they pay for deposits.
b)
Fraud:
According to Adeduro (1998) and Bostley and Drover (1972), fraud can be
seen as intentional misrepresentation concealment, or mission of the truth for
the purpose of deception/manipulation to the financial detriment of an
individual or organization (such as a bank) which also include
embezzlement,theft or any attempt to steal or unlawfully obtain, misuse or harm
the asset of the bank.
c)
Cheque:
Maybe defined as an unconditional order drawn upon a specified banker,
signed by the maker, directing the banker to pay on demand a certain sum of
money only to the order of a person or to be the bearer of the instrument.
d)
Account:
Account is a record of financial transaction for an assets or individual
such as a bank, brokerage credit card company or retail store. More generally,
and arrangement between a buyer and as seller in which payment are to be made
in the future.
e)
Economic growth and development: This can be defined as productive capacity
which has a positive effect on the social welfares of the people in a
particular country.
f)
Diversion:
This is an insistence of turning something aside from its course.
g)
Transfer: A changing of ownership, such as
real estate, a security or a financial account from one party to another.
h)
Management: This is the organization and
coordination of the activities of an enterprise in accordance with certain
policies and in achievement of defined objectives.
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