CHAPTER ONE

INTRODUCTION

1.1              BACKGROUND OF THE STUDY

In its broadest terms, fraud means obtaining of something of value through deception. If fraud were described as an industry it would clearly be one of the fastest growing areas of the economy. One hundred criminals who serve several periods of imprisonment for armed robbery offence were recently reported that he wished he had understood earlier in his criminal career how easy it was to commit fraud. He now considers that fraud involves less traumas, the reward, are far greater and the penalties substantially fewer than in other form of crime. This study will address those forms of fraud that target the financial service sector and how the industry has responded with some measure successful in controlling this ever increasing problems and other measure that can be geared towards achieving further results.

The mere pronouncement of the word, “Fraud”, before people sends a wave of doubts, curiosity, anxiety and concern in general in them as regards the satiety of their resources, be they financial or otherwise. Fraud is seen by people as an enemy, moreover on their own assets even when they themselves are cleaver fraudster’s economy education agriculture, mining, production, banking etc.

In the Nigerian banking industry, fraud is as old as the system itself, dating back to the period between 1982 and 1952 period commonly referred to as “free banking era” in Nigeria, when there was no form of banking act or ordinance to regulate the establishment and operations of commercial banks or a central bank to supervise and control banks within this period, expatriate and indigenous bank were established, all being commercial bank these banks were:

1) The African banking corporation in 1892 which later became the British of West Africa in 1893 and presently, the first Bank of Nigeria plc in 1894

2) The colonial bank in 1917 (Later became Barclays Bank dominion colonial and our seas, and presently the union bank of Nigeria Plc).

3) The British and French Bank (now the united bank of Nigeria Plc): all these being the expatriate banks and the indigenous ones being.

4) The National Bank of Nigeria 1933

5) The Agbomagbe Bank (now called Wema Bank in 1945)

6) The Africa Continental Bank Plc in 1974; and

7) Other indigenous banks that failed following the introduction of banking ordinance of 1975 whose provisions they could not meet.

Some of these banks that were registered between 1892 never opened their doors for business even for a day while some simple collected customer’s deposits and vanished. Those that failed were for reasons traceable to fraud, mismanagement and lack of government patronage. The consequences were the depletion of the individuals and organizations concerned and the nation in general, funds needed for development and upliftment of living standards. This resulted to a loss of faith and trust on the banks hat tint he country. With the banking ordinance of 1952, some element of sanity entered the Nigerian banking industry which was noticed in the regulation of the formation.

According to Olismbu (1991:20), 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. According to Oseni (2006:16), “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, Idolo (2010:63), 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. Among the Nigerian industrial sectors today, one can confidently say that the banking industry is the most visible sector that arouses most public interest. The viability of the banking sector in any economy stems from its role of financial intermediation, provision of an efficient 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 purpose of expanding their productive capacity.

Fraud however has been defined by many scholars Olufidipe (1994) defined trick deliberately practiced in order to gain some advantage (1991), fraud is described as „any premeditate a person or group of persons with the intention of altering facts in order to obtain undue personal monetary advantage‟. Another scholar Idowu (2 camouflage, or exclusion of the truth for the purpose of dishonesty/stage management to the financial damage of an individual or an organization. Going by the definition of the chambers universal learners dictionary Kirkpatrick (1985) define fraud as any person who pretends to be something that he is not is a fraud, a snare, a deceptive, trick, cheat and a swindler. Having explained what fraud is, it is pertinent to define bank fraud which is the subject matter of this study; however bank fraud is the use of fraudulent means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently representing to be a bank or financial institution. For an action to constitute fraud there must be a dishonest intention and the action must be intended to benefit the perpetrators to the detriment of another person.

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, cheque kiting, telex fraud, money laundering fraud, computer fraud, loans fraud and the likes.

According to Oseni (2006) 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 view of Oseni, Idolor (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. Although the incidence of frauds is neither limited to the banking industry nor peculiar to Nigeria economy, however the high rate of fraud within the banking industry, calls for urgent attention with a view to finding solutions. Fraud in its effect reduces organizational assets and increases its liabilities. With regards to banking industry, it may engender crises of confidence among the banking public, impede the going concern status of the bank and ultimately lead to bank failure (Adeyemo, 2012). According to kimani (2011) `A way of making money is to stop losing it. The level of fraud in the present day Nigeria has assumed an epidemic dimension. It has eaten deep into every aspect of our life to the extent that a three years old child talks about 419, the name given to the newly discovered advanced fee fraud that is hunting our nation.

“In July 2004, central bank of Nigeria (CBN) unveiled new banking guidelines designed to consolidate and restructure the industry through mergers and acquisition. Banks and Other Financial Institutions Act (BOFIA) 1991, section 15, was also designed to prevent fraud and to make Nigeria banks more competitive and able to play in the global market.

The Nigeria Deposit Insurance Corporation (NDIC) 2007 annual report and statement of accounts report that cases of attempted frauds and forgeries in insured banks, as at 2007 exceeded what was recorded in the year 2006. For instance, the NDIC report for 2007 disclosed that a total of 1,553 reported cases of attempted frauds and forgeries involving over symbols ₦10 billion compare with 1,193 reported cases of fraud and forgeries involving ₦4,832.17 billion in the year 2006. The foregoing statistics clearly unfolds the extent to which fraud had had eaten deep into the financial strength benefit the perpetrators to the department of another person”.

Today, banks cannot withstand the growing pressure of competition among various banks due to the monster called bank frauds. If this act of fraud is not arrested, it might delete our resources because foreign investors might not find it wise to transact business via our banks.

1.2              STATEMENT OF THE PROBLEM

As earlier mentioned, the Nigerian banking industry, the back bone of Nigeria economy is one of the most profitable of higher performance and could achieved better result in output and obligation to the society. To realize this, the banking industry will have to perform lending role that can reinstate the economy.

The low level of the performance of the Nigerian banking industry is due to an array of problems, one of which is the issue of fraud which is one of the most intractable and monumental problem facing the industry.

The problem of accountability is traceable to the root cause of fraud which results from poor record keeping misappropriation forging, poor internal control, excess power given to the executive or management etc.

1.3              OBJECTIVE OF THE STUDY

The primary objective of the research is to evaluate the fraud control measures in the Nigerian Banks practical means of reducing the incidence of fraud in our bank to achieve these objectives, the following secondary objective have been specified.

1.   To identify the causes of fraud perpetrated in bank

2.   To ascertain the effectiveness of various fraud control measures adopted by banks.

3.   To determine the effects of fraud in the banking industry and the economy in general.

1.4              RESEARCH HYPOTHESES

Hypotheses One

Ho: Fraud control measures put forward by the CBN is not effective

Hi: Fraud control measures put forward by the CBN is effective

Hypotheses Two

Ho: There is no relationship between fraud and Auditing functions in the banking sector

Hi: There is a relationship between fraud and Auditing functions in the banking sector

1.5       SIGNIFICANCE OF THE STUDY

The significance of the research study is hinged on the fact that the fate  survival of the banking and financial system, it follows therefore that any serious destruction in the system will not only affect the system alone but the Nigerian economy and the public in general and the consequences which could leave the economy in jeopardy. Therefore, the remediation will help take the problem of fraud thereby reducing bank failures and stabilize the industry.

The research study will go a long way to show the effect of fraud in banks, its implication on the industry and possible remedies. It also shows the impact of those remedy on the economy and society in general. Banks and other financial institutions are expected to gain double from this study. First the study will highlight operations, lapses and others that give room for fraudulent activities in the banks and secondly will also stimulate self-assessments by banks the research work will also go a long way in increasing the knowledge of students of banking financial management accounting, administration and other related discipline.

 1.6 SCOPE AND LIMITATION OF THE STUDY

This study is primarily concerned with the effect of fraud control in the Nigerian banking sector. This study covers CBN Uyo branch. The researcher encountered some constraints, which limited the scope of the study. These constraints include but are not limited to the following

 a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study   

b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

1.7 DEFINITION OF TERMS

Fraud: In law, fraud is deliberate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud itself can be a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compensation), a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities) or it may cause no loss of money, property or legal right but still be an element of another civil or criminal wrong.

Banking sector: The banking sector is the section of the economy devoted to the holding of financial assets for others, investing those financial assets as leverage to create more wealth, and the regulation of those activities by government agencies.

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