FRAUDS AND FORGERIES IN THE NIGERIAN BANKING INDUSTRY

Abstract

This study examines the impact of frauds and forgeries on the banking industry in Nigeria. One of the major characteristics a bank must possess is that its customers must be able to have unflinching and undoubted confidence in the banking the banking system, but due to the act of fraud and forgeries, this confidence has been reduced to the barest level, this does not affect the banking sector alone, but the long-term effect in on economy as good banking system helps to promote economic development. The primary source of data collection was used for this study. The simple random sampling was used to select 50 firms which serve as the sample size of the study. The chi-square statistical tool was used to test the stated hypotheses. The findings revealed that frauds and forgeries in the banking sector have negative impact and implication on the banking system and other sectors of the economy which make up the entire system. It was also concluded that the total loan portfolio of the banking industry affects the deposits base of the industry as performing credit facility will have a positive impact on the deposit base because loan payment will increase the deposit base and interest on such loan will be realized immediately. It was also recommended that there is the need for members of the public to shun the habit of cultivating corrupt practice as part of our lives.

TABLE OF CONTENTS

Title Page                                                                         i

Certification                                                             ii

Dedication                                                                       iii

Acknowledgements                                                  iv

Abstract                                                                   v

Chapter One: Introduction                                    1

1. Background to the Study                                                 1
2. Statement of Problem                                              4
3. Research Questions                                                 5
4. Objective of the Study                                              5
5. Statement of Hypothesis(es)                                     5
6. Significance of the Study                                                 6
7. Scope of the Study                                                   7
8. Limitations of the Study                                          7

Chapter Two: Review of Related Literature         8

2.1   Introduction                                                             8

2.2   Types of Fraud                                                                 11

2.3   Causes of Fraud                                                       13

2.4   Consequences of Bank Fraud                                  17

2.5   Frauds in the Nigeria Banking Industry                   23

2.6   Review of Past Work                                                         26

2.7   Effect of Fraud and Malpractice on Banks               29

2.8   Strategies for Preventing Fraud                                30

Chapter Three: Research Method and Design       36

1. Introduction                                                             36
2. Research Design                                                      36
3. Description of Population of the Study                    36
4. Sample Size                                                             37
5. Sampling Techniques                                              37
6. Sources of Data Collection                                       38
7. Method of Data Presentation                                   38
8. Method of Data Analysis                                          38

Chapter Four: Data Presentation, Analysis and Interpretation                                                  40

4.1   Introduction                                                             40

4.2   Data Presentation                                                    40

4.3   Data Analysis                                                           40

4.4   Hypothesis Testing                                                  50

Chapter Five: Summary of Findings, Conclusion and Recommendations                                                         55

5.1   Introduction                                                             55

5.2   Summary of Findings                                              55

5.3   Conclusion                                                              55

5.4   Recommendations                                                         57

References                                                              59

Appendix I                                                               61

Appendix II                                                              62

CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

Banks all over the world have through their unique position in the economy contributed immensely to economic growth and development of nations, hence the banking sector in any country plays fundamental role in increasing the level of economic activity.

A bank is any person, partnership, or company that provide the minimum banking services and which is licensed by the federal government as a banking institution. Such minimum banking services includes acceptance of deposit from the general public making payment to depositors on demands to the extent of the money available in their accounts: granting loan and advances to credit, worthy customers be involved in the clearing of cheques, etc.

Any problem that tend to hinder their smooth operation such as fraudulent practices is often viewed with seriousness for long, Nigeria financial system has suffered from fraudulent practiced perpetrated by banks as a corporate body.

Fraud is any activity that amounts to unfair dealings, he also described forgery as any acting that led to frauds where as forgery itself is an act in which a person knowingly makes a false document or writing with the intent that it may in any way be used or acted upon as genuine, be induced to do or restrain from doing any act whether Nigeria or else where, also in the same vein, Osamwonyi (1998) defined fraud as any activity or deception practiced to cheat, deceived, or circumvent another to his injury.

Thus, the definition of fraud varies widely in nature, but can be summarized as the misappropriation, misrepresentation and manipulation of firms or persons facts and figures, for personal gains. Any acts of unfair dealing, weather against the bank by its customers or against the customer by the bank (including the officials) or against the bank by its officers are regarded as a fraud.

The effect of fraud on the banking system is sometimes very damaging, it leads to loss of money which obviously reduces the profit base of the industry. It also leads to loss of confidence in the banking sector by its shareholder as it might affect their dividend. Fraud is regarded as a leakage in the system. Bank fraud affects banks staffs by way of dismissals, termination or suspension. Therefore, fraud and fraudulent practices in banking industry of any nation retard economic progress. Efforts have being made by governments, institution and various agencies to reduce the widespread of these frauds.

The Nigeria government, for example in 1994 promulgated and ordered. The failed bank tribunal to try frauds and officers of bank connected with contributing towards failed banks. Institutions have also tightened loopholes and recommendation and applied tough measures including internal controls system, compliance with producer for the opening of new accounts and transfer, meticulous examination in hiring and recruiting personal of banks, proper inspection of books and remunerating workers are recommendations that would help to reduce frauds In the banking industry.

1.2   Statement of Problem

This study is concerned with finding out the impact of fraud on the banking industry in Nigeria. Distressed banks Nigeria today have suffered a great deal of frauds and the abuse of credit facilities by insides. The extent of frauds in banks rather than abate, has continued to escalate. Since 1970s banks been maintaining a commendable growth but regrettably, our financial system has been saddled with myriads of problem one of these is the intractable fraud that has bedeviled the system. The magnitude of this problem and its impact on the banking industry has inspired this research on fraud in Nigeria’s banking industry.

The non – profitability in some of our banks is partly as a result of frequent fraud incidents. The liquidation of 31 banks in May 2003 by the regulatory authorities that is, Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) can be largely attributed to frauds. This study therefore seeks to evaluate the effects of fraud in bank profitability and survival.

1.3   Research Questions

The following questions will guide the conduct: 

1.     To what extent does bank fraud affect the performance of the banking industry in Nigeria?

2.     To what extent does weak internal control contribute to bank fraud?

3.     To what extent do forgeries affect shareholders’ decision in the Nigerian banking sector?  

1.4   Objectives of the Study

The primary objectives of the study are:

1.     To examine how bank fraud affect the performance of the banking industry in Nigeria.

2.     To ascertain to what extent weak internal control contribute to bank fraud.

3.     To ascertain how forgeries affect shareholders’ decision in the Nigerian banking sector.

1.5   Research Hypotheses

Hypothesis One

Bank fraud does not affect the performance of the banking industry in Nigeria.

Hypothesis Two

Weak internal control does not significantly contribute to bank fraud.

Hypothesis Three

Forgeries do not significantly affect shareholders’ decision in the Nigerian banking sector.

1.6   Significance of the Study

The nature of this study involves the use of second data. Further more, an econometric model will specified to examine the impact of fraud on the banking industry in Nigeria between 2010 and 2015.

The academic study on frauds in the banking industry in Nigeria will be useful to several groups of scholars, students, government and the general public.

Student of banking and finance, economics, accounting and management etc shall make use of this work as a valuable research work. Secondly it shall enable the readers, financial institution, non-banks financial institution, financial analyst and the government to understand the causes of fraud and its impact on the banking industry in Nigeria.

The research work therefore is designed to help the general public get acquainted with various frauds and their method of execution with the view of gaining sufficient knowledge to enrich individuals and collective experience in management and prevention of fraud. 

1.7   Scope of the Study

This study examines the impact of frauds and forgeries on the banking industry in Nigeria. It covered the time period of five (5) years (2010 – 2015). For this study, the researcher used a sample of 50 for effective survey with special reference to Benin Metropolis.

1.8   Limitations of the Study

In the light of these limitations, obstacles are bound to be encountered in carrying out this type of research.

More disturbing was the un-corporative attitude of bankers who where not always willing to release data on fraud as it affect their irrespective banks: this is because public perception of the corporate image of the bank will be adversely affected hence the need to withhold information on frauds.