CHAPTER ONE

INTRODUCTION

1.1        Background of the Study

The study entails the rapid increase of the case of fraud in the financial institutions and how it affects the performance of these financial institutions.  People are scared of taking their money to banks because of fear of fraud.  Although various procedures for prevention of this ugly act exist, but it seems like the most powerful remedy is the intervention of God.

Different authors and researchers emerge with their definitions on the concept of financial fraud.  The followings are most of the definitions.

According to Oxford Advance Learners Dictionary, fraud is defined as the crime of cheating in order to get money or goods illegally.

According to the Chartered Institute of Public Finance and Accounting, United States, fraud is defined as those intentional distortions of financial statement or other records which are carried out to conceal the misappropriation of asset or otherwise.

Adeniyi (2001), fraud refers to intentional act by one or more individuals among management, employees, or third parties which results in a  misrepresentation of financial statements.

However, having closely studied these approaches from definition of fraud, especially from the banking perspective, banking fraud can be seen as a deliberate act by an individual or group inside or outside the banking system to cheat, swindle or manipulate another to dispose the bank depositors or shareholders of their funds.

Despite several definition of fraud, the authors believe that the ones so far given are nearly appropriate, inspiring and of advantages for the purpose in which the researcher intends to achieve.

The position of banking system in our economy cannot be overemphasized.  They act as the “conduct pipe” through which all the financial transaction passes.

However, fraud has brought a setback to the functioning of the roles of the banking system,  people are beginning to get worried and sooner than later may lose confidence in our banking sector due to the mainly increasing incidence of fraud in our today bank, properties should be on trust not fraud.

1.2        Statement of the Study

The frequent causes of financial fraud in many financial institutions in our country are now taken as the uttermost concern to financial experts and macro economist.  To some banking experts, the issue of fraud is an internal vice on the Nigeria banking system.  They argue on this because a good numbers of frauds occur among our banks without the knowledge of outsiders and even where the public is aware, it does not affect the rate at which customers withdraw or deposit money.

Fraud has paralyzed the roof and foundation of our banking system.  Hardly will you find a daily newspaper which does not bring news about fraud check, the police record and you will be surprised at the extent of bank fraud in the banking system which has been affecting the performance of some banks.  Fraud in many ways has affects the Return on Capital Employed (ROCE) of some banks.  Therefore, the researcher is aiming at tracing fraud in the banking system and how it affects the performance of such banks, with special reference with UBA Plc, Asaba.

1.3        Objectives of the Study

The main purpose is to investigate the effects of fraud in banking industry.  Other specific objectives are:

1.      To find out the causes of fraud in our financial institutions.

2.      To know the extent in which fraud affects the performance of financial institutions.

3.      To recommend preventive measures that may help in the reduction of financial fraud in our banking system.

1.4        Research Questions

The following research questions have guided this study.

1.      To what extent does the level of fraud affect the performance of financial?

2.      To what extent has financial fraud in the banking industry lead to the failure of banks?

3.      To what measure does the preventive measure taken by these banks helped to reduce fraud?

1.5        Significance of Study

This project will be of help to readers and other researchers who wish to make reference on this study, while undertaking similar research work.

It will be of help to financial institutions and other organisation both in public and private sectors to use the findings of this research to equip the audit department.  It will serve as an eye opener to investors and shareholders on what it takes to invest in banks.

However, this work will be of immense help to financial institutions in Nigeria in particular and to all that may have need for assistance in detection of these opportunities in general.

1.6        Scope of Study/Delimitation of the Study

This research work is to examine fraud and how it affects the performance of financial institutions and how it can be prevented with a particular reference to UBA Plc.  In other to attain the objectives of this research, the scope of the study was defined to embody all relevant aspects of fraud in banking industry.

The scope of the study also focused on areas relating to the staff strength, and size of depositors, size of loans and allowances, years of banking experience of fraudsters, the means of fraud prevention and detection, and the punishment to be imposed on fraudsters.

1.7        Limitation of the Study

In a study of this nature, one would like to accumulate data from many areas, but owing to the length of time allowed for this research, such a wide range sample study was almost externally difficult.  There are lots of factors that constituted limiting factors of this project work, just to mention few which are:

1.      Financial Constraints: As a student, there was no enough capital to spend for transport and fact findings, also borrowing of more relevant literature will be of help in writing this project.

2.      Attitude: The non-challant attitude of some of the staff members regarding giving useful information hinders the progress of the research due to fear of being dismissed for giving out official secrets.

3.      Unreleased Information:  Some information were being coded by the organisation which was not released to the researcher.

4.      Death Information:  There are no comprehensive write up or books on compulsory acquisition and compensations.  There are few books and journals in search for this topic and hence review of literature was difficult.

5.      Time Factor:  The short limited time given for the compilation of this project deprived of more technical touches.

However, effort has been made to ensure that this situation does not hinder the completing and quality of this research work.

1.8        Definition of Terms

Audit: The independent examination and expression, opinion on the financial statement of an enterprise by an appointed auditor, in pursuance of that appointment and in compliance with any relevant statutory obligation.

Error: Unintentional mistake in financial statement whether of mathematical or clerical nature or whether due to over sight, misinterpretation of the relevant facts.

Fraud:  This is the intentional distortion of the financial advantage such as the misappropriation of assets, avoidance or evasion of tax and omission of disclosures.

Fraud Auditing:  The creation of an environment that encourages the detection and prevention of fraud in government, public, commercial and even private establishments.

Internal Audit:  This is a management tool with which is used to appraise the activities of the management by themselves through appointed staff of the organisation.

Internal Control System:  This is the management control which functions by measuring and evaluating the effectiveness of other control in all areas of the organisation.

Misappropriation of Assets: This is an irregularity involving acquisition or application of the resources of an enterprise for one’s personal benefit without disclosure to the enterprises.

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