ABSTRACT
The Nigerian banking industry which is 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 larger society expects greater accountability, fairness, transparency and
effective intermediation from banks, ensuring that they carry out their responsibilities with
sincerity of purpose and devoid of fraud which is an important ingredient for gaining public trust
and goodwill. The extent to which fraud is prevalent in the banking sector, the nature and causes
of bank frauds and proffering possible solutions to the problem is in essence what this research
work is all about. Consequently, the study used interview method which is a primary source of
data by interviewing the managers, supervisors, employees, customers and regulatory bodies of
banks in Nigeria. Based on the methodology used in the study, the following findings were
revealed that when there is a weak internal control system, there is tendency for fraudulent
activities to occur and also, the kind of management system has a role to play in the sense that if
there is a weak management system, it will not be easy to control and manage fraud. Also, from
the above findings, the study recommends that there should be segregation of officers duties,
good organizational procedure should be in place, proper attention should be paid to finance,
attractive pay packages in form of incentives should be given to staffs and good corporate
governance should be established.
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TABLE OF CONTENT
CONTENTS PAGES
Title Page……………………………………………………………………………… i
Certification…………………………………………………………………………… ii
Dedication……………………………………………………………………………… iii
Acknowledgement…………………………………………………………………….. iv
Declaration…………………………………………………………………………….. v
Abstract………………………………………………………………………………… vi
CHAPTER ONE: INTRODUCTION
1.1 Background of the study………………………………………………………….. 1
1.2 Statement of the problem………………………………………………………….. 3
1.3 Objective of the study……………………………………………………………… 3
1.4 Research question………………………………………………………………….. 3
1.5 Research hypothesis………………………………………………………………… 4
1.6 Significance of the study…………………………………………………………… 4
1.7 Scope of the study………………………………………………………………….. 5
1.8 Limitations of the study…………………………………………………………….. 5
1.9 Organisation of the study……………………………………………………………. 5
1.10 Definition of terms…………………………………………………………………. 6
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction…………………………………………………………………………. 7
2.2 Conceptual clarification……………………………………………………………… 7
2.3 Causes of fraud in Nigerian banking system………………………………………… 14
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2.4 Effects of fraud in banking industry in Nigeria…………………………………….. 16
2.5 Measures for controlling in the banking industry in Nigeria……………………….. 19
2.6 Theoretical frame work of fraud in banking industry………………………………. 23
CHAPTER THREE: METHODOLOGY
3.0 Introduction………………………………………………………………………… 25
3.1 Research design……………………………………………………………………. 25
3.2 Research population………………………………………………………………… 25
3.3 Sample and sampling techniques…………………………………………………… 27
3.4 Research instruments………………………………………………………………. 27
3.5 Validity and reliability of instruments……………………………………………… 27
3.6 Method of data collection…………………………………………………………… 28
3.7 Data analysis techniques…………………………………………………………….. 28
CHAPTER FOUR: DATA ANALYSIS
4.1 Introduction…………………………………………………………………………. 29
4.2 Analysis of data collected…………………………………………………………… 29
4.3 Description of research instrument used…………………………………………….. 36
4.4 Summary of data analysis and the result achieved…………………………………… 36
CHAPTER FIVE: SUMMARY OF FINDINGS, DICUSSIONS, CONCLUTION AND
RECOMMENDATION
5.1 Summary of findings…………………………………………………………………. 38
5.2 Discussions of findings………………………………………………………………. 38
5.3 Conclusion……………………………………………………………………………. 39
5.4 Recommendations……………………………………………………………………. 39
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5.5 Suggestions for further study………………………………………………………… 40
Bibliography………………………………………………………………………………………………… 41
Appendix…………………………………………………………………………………………………….. 43
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CHAPTER ONE
Introduction
1.1 Background of the Study
Fraud is an intentional deception made for personal gain or to damage another individual. Fraud
is a crime and a civil law violation. Defrauding people of money is presumably the most
common type of fraud. Customers of banks in Nigeria are currently experiencing increase in
fraud schemes, Scams to get a customer personal information can occur through many different
means such as e-mail and telephone. Bank fraud is the use of deceitful means to obtain money,
assets, or other property owned or held by a financial institution.
In its broadest terms, fraud means obtaining of something of value through deception. If fraud
were to be 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.
In many instances, bank fraud is a criminal offence, while the specific element of a particular
banking fraud law varies between jurisdictions; the term bank fraud applies to actions that
employ a scheme as opposed to bank robbery or theft.
The banking sector in any country plays a fundamental role in increasing the level of economic
activity as intermediaries to both suppliers and users of funds, banks are effectively situated in a
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continuum that determines the pulse of the economy. Worldwide, the ability or inability of banks
to successfully fulfill their role as intermediaries has been a central issue in some of the financial
crisis that has been witnessed so far. Diamond (1984) posits that a special feature of banking
activities is to act as delegated monitors of borrowers on behalf of the ultimate lenders
(depositors).
In this special relationship with depositors and borrowers, banks need to secure the trust and
confidence of their numerous clients. Though this requires safe and sound banking practices, it is
not always the case as bank failures in different countries have come to prove. Controlling bank
fraud in the financial sector is a major task for all the stake holders in the sector. Every year,
banks lose billions of naira to fraud which comes in all size and shapes both from external
perpetrators and internal employees.
The rise in fraud in the banking industry has lately become an embarrassment to the nation as
apparent in the seeming inability of the law enforcement agents to successfully track down
culprits. Whereas the activities of armed robbers is given widespread reviews in the pages of
newspapers, especially during major thefts, it is an irony that what they cart away from banks is
only a slice of what fraudsters remove from banks tills.
Also the number of insiders (staff) who connive with outsiders to perpetuate the act is alarming.
According to an NDIC publication, about 1,914 bank staff of various banks was involved in bank
frauds between 1994 and 1996. The report also established that frauds contributed immensely to
the failure of most banks in the 1990s, the amount involved representing as much as 32.1% of
shareholders funds in 1998 (Udegbunam, 1998). Equally worrisome is the rise in the number of
top management staff that have either been indicted or accused of engaging in bank fraud.
Against these background, the main purpose of this study is to ascertain the nature and causes of
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bank frauds; as well as proffer solutions that it is hoped, would help reduce the rise in bank
frauds in the country.
1.2 Statement of the Problem
As earlier mentioned, the Nigerian banking industry which is 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 larger society expects greater accountability, fairness,
transparency and effective intermediation from banks, ensuring that they carry out their
responsibilities with sincerity of purpose and devoid of fraud which is an important ingredient
for gaining public trust and goodwill. The extent to which fraud is prevalent in the banking
sector, the nature and causes of bank frauds and proffering possible solutions to the problem is in
essence what this research work is all about.
1.3 Objective of the Study
The primary aim of this research work is to ascertain the nature and causes of bank frauds in
Nigeria. Thus, the study aims at the following objectives:
i. To examine the causes of fraud perpetrated in Nigerian banking industry.
ii. To examine how effective is the level of efficiency of the banks management and fraud.
iii. To identify the effects of control system such as internal control system and the level of
fraudulent activities in banks.
1.4 Research Questions
1. What are the causes of fraud perpetrated in banks?
2. How effective is the level of efficiency of the banks management and fraud?
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3. How effective are the internal control system of banks in control and management of
fraud practices in the Nigerian banking industry?
1.5 Statement of Hypothesis
HO: There is no significant relationship between the level of efficiency of the banks
management and fraud
HI: There is a significant relationship between the level of efficiency of the banks management
and fraud.
HO: There is no significant relationship between the control system such as internal control and
the level of fraudulent activities in the banks.
HI: There is a significant relation between the control system such as internal control and the
level of fraudulent activities in the banks.
1.6 Significance of the Study
The impact of bank fraud on the operations of banks in Nigeria and indeed the economy at large
is of interest to researchers and industry practitioners. Studies concerning bank frauds in Nigeria
have highlighted the contribution of frauds to bank distress (Udegbunam, 1998). Also the study
will highlight the causes and the prevention of fraud activities and the findings will be useful for
policy making in the banking industry and also provide solution for fraudulent activities.
Furthermore, the study will be of valuable benefits and usefulness to all categories of bank
managers, financial information users such as existing and potential shareholders, creditors and
fund providers and the relevant government agencies. Also, researchers and students in the field
of banking and finance who want to know more about frauds, its causes and possible ways of
preventing it will also find the study beneficial.
1.7 Scope of the Study
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The scope of this study research will however be limited to only banking industry in Nigeria.
These will include banks like First bank plc, Wema bank plc, Sky bank plc, Guarantee trust bank
plc, United bank for Africa, Fidelity bank plc, Diamond bank plc, Key stone bank plc, Access
bank plc, and Eco bank plc. The study is primarily concerned with fraud control, measurement
and management in the Nigerian banking industry with regard to banks of Nigeria.
1.8 Limitations of the Study
The following are the constraints faced by the research in the course of carrying out the work.
1. Due to the fact that this research work employs the use of interview in the collection of data,
some respondents felt reluctant to proffer confidential answers during personal interrogation
sessions.
2. The search for appropriate materials for the research work was not easy facing the
circumstance of poor internet network and getting the appropriate books in the library to help in
attaining effectiveness of the work.
3. Time constraint is another major problem faced as the researcher has to carry out the work
within a short time given by the school for the submission. In spite this, the researcher was still
able to carry out the necessary research and got useful date and information.
1.9 Organisation of the Study
The study shall be organized into five chapters. Chapter one gives the introduction to the study.
Chapter two shall consider the review of related studies on fraud control and management in
banks, as well as the theoretical framework. The literature review examine past work on the
study while then theoretical frame work will center on the types of frauds and forgeries, trends
of fraud in banking industry, causes of frauds, impact of fraud on banking Business E.T.C
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Chapter three will explain the methodology to be used which include the sources and nature of
data used, as well as analytical techniques to be employed. Chapter four will consist of the
presentation, analysis of data, and interpretation of result presented. Finally, Chapter five is a
summary of findings, conclusion and recommendations.
1.10 Definition of Terms
Fraud: Fraud is an act of or course of deception deliberately practiced to gain unlawful or unfair
advantage deception directed to the detriment of another.
Financial Industry: This involves all financial institutions such as banks, insurance company
etc.
Bank: Is an establishment saddled with the responsibility of keeping money and valuable safely,
and the money being paid out of the customer order.
Internal control: this means methods put in place by a company to ensure the integrity of
financial and accounting information, meet operational and profitability targets and transmit
management policies throughout the organization.
Control: A policy or procedure that is part of internal control.
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