DETECTION AND PREVENTION OF FINANCIAL FRAUD IN NIGERIAN BANKS

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF STUDY

Nigerian banking sector continues to be a vital part of the economy. Even since the inception of the nation’s first bank in the 19th century, banks have recorded tremendous growth. In spite of the hardship in the economy, people still rush to work in banks compared to other sectors with the belief of finding greener pastures there. With such negative motives as making money fast in minds, some people go to banks and when they can’t make it so fast, they go on to defraud the banks.

Financial fraud occurs where there is money. Banks deal with money and so still remain the widest area open to fraud. Our daily newspapers are flooded with news of frauds. The rate at which fraud occurs continually increases by the year. And new means of perpetrating fraud is devised. In recent times, with advancement in technology in form of invention of computers, telex system , etc frauds have taken a new dimension.

In our banks, unscrupulous individuals operate the computer fraudulently. It is now even possible to transfer huge sums of money through telex system. The activities of the popular 419 group should be mentioned since this group deals in exhortation of money from their culprits, they usually withdraw some huge amount of money as well as deposit the money they fraudulently collected from their culprits.

Worthy of note is the much work that has been done in an effort to curb fraud, still fraud has continued and had reached such an alarming state, that even bank notes, cheques and other financial instruments were now forged and circulated in the economy. In writing this project, I want to reveal those areas of fraud yet undiscovered and discover the ways of eliminating fraud.

1.2              STATEMENT OF THE PROBLEM

Our banks have in recent times been exposed to greater risk of fraud. The attention of many have been drawn to the banks either directly or indirectly. Most workers look up to the banks to rise up to their problem. People see banks as floating in money and identification with banks as success. With such motives, some workers go to the banks disappointed. Not getting so much as they thought most of them decide to make away with what they can at the slightest opportunity. Since it is said that ”opportunity comes but once”, even the seemly elite may be or are involved in fraud.

Nigerian’s depressed economy also comes to mind. Times are so hard that people are trying to make it by all means. Fraudulent persons often connive with bank officials to dupe the banks. Some are imposters who with the help of some bank officials claim to be what they are not and have large sums of money remitted to their accounts. Telex fraud is also a new dimension.

Actually, much work has been done on fraud but the wave and sophistication of the scourge continues. As we know, fraud can never be completely eliminated as some people, no matter the high security, will always beat the system to commit fraud.

1.3              SIGNIFICANCE OF THE STUDY 

This study from the little we know will be very significant to the Nigerian economy as a whole. The banking sector will remain an inevitable aspect of the economy and it would pay for it to be conducted in a very free and fair manner. The areas of risks of financial fraud when detected will help eliminate the problem posed to the public. The study will help restore people’s mind to using the banks as some people are now having the impression that banks are not actually what they are meant to be.

The study will be indispensable to the banks. Common areas of risks will be brought to light. Effective ways of eliminating fraud will be examined.

1.4              OBJECTIVES OF THE STUDY

There are a number of objectives this study aims at achieving by embarking on this research:

1.                  To determine actually whether financial fraud exists in Nigerian banks

2.                  To verify the effects of financial fraud on the banks and Nigerian economy.

3.                  To find out how the computer aids the commission, detection and prevention of financial fraud.

4.                  To determine the types and causes of financial fraud.

5.                  To evaluate management control in the detection and prevention of fraud.

6.                  To review and make better, the work that has already been done in the area of financial fraud and lay basis for future research.

7.                  To show that banks through proper detection and control, can help check the activities of 419 groups as it concerns the banks.

8.                  To recommend ways of solving the problem of financial fraud and find lasting solution to the after effect of fraud.

1.5              FORMULATION OF HYPOTHESIS

There is no relationship between the “size” of fraud in a bank branch and the “Size” of the bank branch. The size of fraud is defined in two ways; the number of fraud cases and the amount involved.

Thus hypothesis 1 is expressed mathematically as follows:

Ho:      Y1       ≠          F          (x)

Y2       ≠          F          (x)

Hi:       Y1       =          F          (x)

Where:           Ho = Null hypothesis

H1 = Alternative Hypothesis

Y1 = Number of fraud cases per bank

Y2 = Amount of money involved in fraud per bank

Branch

                        X =      Staff strength per bank branch

2.         That there is no relationship between this “size” of fraud in a bank branch and the “age” of the bank branch.

Mathematically:

Ho:      Y1       ≠          F    (P)

Y2       ≠          F    (P)

Hi:       Y1       ≠          F     (P)

           Y2      ≠       F     (P)

 Where P = age of a bank branch (number of years since establishment).

3.         That relatively inexperienced staff of a bank are more likely to commit fraud.

Mathematically:

            Ho : R ¹  F (q)

Hi : R = F (q)

Where:  R = number of fraud cases per category of staff.

q = number of years of banking experience

4.         That more experienced bankers are more likely to swindle large sums of money. That is, bankers with five or more years of working experience are more likely to swindle a total of ten thousand naira (10,000) and above.

Mathematically:

Ho:      A      ¹   F (q)

Hi:       A         ¹ F (q)

What A = amount of money involved (N10, 000 and above) in fraud per bank branch.

1.6              SCOPE OF THE STUDY

The study covered the commercial and merchant banks operating in Nigeria. These banks had a total of 1,485 branches of which, 1,071 were filled with cases of fraud by the central bank of Nigeria. Out of the 1,071, 12% or 126 bank branches spread nationwide were selected and surveyed.

In order to attain the objectives of this research the scope of the study was defined to embody all relevant aspects of fraud in banking operations. Information was obtained on the number of fraud cases perpetrated in each bank, the different types of fraud; the amount of loss to banks and to customers; the persons involved in fraud; the period of concealment; the incidence of collusion; the causes of fraud and the level of effectiveness of fraud prevention measures.

The study also focused on areas relating to staff strength of banks, size of deposit, size of loans and advances, means of fraud prevention and detection.