ABSTRACT
Fraud is an epidemic dimension that has eaten deep into the banking sector as well as the entire
economy. Its devastating effect manifests itself in the deteriorating balance sheet of banks as well
as in economic backwardness. As a result, measures to eradicate fraud in banking sector become
a central focus of the government and the monetary authorities. It was against this backdrop that
this study was aimed at providing empirical evidence on the effect of fraud on performance of
banks. Data for the analyses were obtained from primary data through questionnaires and
secondary data from Nigeria Deposit Insurance Corporation (NDIC) Annual Report. Four
hypotheses were formulated to access the impact of looting of fund, social and environmental
factors, motivation and government effort on effect of fraud on banks performance in Nigeria.
These were tested with simple percentages and chi-square (x2
) statistical technique at 5%
significance level. Results showed that lack of adequate motivation is not a major cause of fraud
in banks, looting of fund by bank managers and directors constitutes the major form of fraud in
Nigeria, government effort and its agencies have negatively impacted on combating fraud in
Nigeria and environmental or social factors have negative impact on bank fraud. On the basis of
findings, it is recommended that government should make their impact to be felt in combating
fraud by establishing more agencies for combating frauds. Those managers and director
involved in looting of fund should be persecuted to serve as a deterrent to subsequently once. In
addition, bank staff should be properly screened to test their morality and integrity before
recruitment. Adequate internal control system should also be establish to have check and
balances among bank staff. It is envisaged that if all these are put in place, fraud will be reduced
to its barest minimum thereby restoring confidence to bank customers.
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CHAPTER ONE
INTRODUCTION
1.1: BACKGROUND OF THE STUDY
The significance of the banking sector in any country stems from its role of financial
mobilization from surplus to deficit unit, provision of a competent 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 purposes of expanding their productive capacity.
The banking sector has become one of the most critical sectors in the economy with wide effect
on the level and direction of economic growth and transformation and on such economic
variables 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 deteriorated in view of incessant frauds and accounting scandals.
Fraud however has been defined by many scholars Olufidipe (1994) defined fraud as „deceit or
trick deliberately practiced in order to gain some advantages dishonestly‟. According to Boniface
(1991), fraud is described as „any premeditated act of criminal deceit, trickery or falsification by
a person or group of persons with the intention of altering facts in order to obtain undue personal
monetary advantage‟. Another scholar Idowu (2009) also sees fraud as a deliberate falsification,
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.
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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).
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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 give 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
Banks generally have been experiencing fraud since its evolution. This affects the performance
and the profitability of banks and may possibly lead to distress. The inability to identify the
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immediate and remote causes of continuous cases of bank frauds in virtually all banks in Nigeria
is one of the problems brought to bare.
Fraud is a major challenge to the entire banking industry; no bank is immune to it and in all
facets of life (Olorunsegun, 2010). The banking public expects accountability, fairness,
transparency in their day operation for effective intermediation.
Though there were known cases of fraud in the sector, one major question still remain
unanswered which is what is the nature and different ways through which fraud can be
perpetuated in banks. It is asserted by Adeyemo (2012) that fraud in the bank is possible with
corroboration of an insider. The banks are expected to ensure that they carry out their
responsibilities with sincerity of purpose which is devoid of fraudulent practices. This is relevant
if the banking sector is to gain public trust and goodwill.
Another problem is that the government and its agencies have not put enough effort in the
prevention and control of bank fraud in Nigeria; otherwise the level of bank fraud would have
reduced to a bearable level. Agencies like money laundering Act which helps to place
surveillance on any account through which such excess cash deposits or withdrawals are made,
Nigeria Deposit Insurance Corporation which is involved in managing bank distress, failed banks
and financial malpractices in banks Act which was vested with powers to recover the debts of
failed banks, dishonored cheques Act which affects banks in their collection and payment of
cheques on behalf of their customers and Bill of Exchange Act which helps to collect the
proceeds of trade bills of exchange and cheques are not putting enough effort in the prevention
and control of bank fraud that is the reason why bank fraud is increasing day by day in Nigeria.
However, environmental or social factors pose a problem in the activities of banking industry as
they contribute to bank fraud in Nigeria. Environmental factors are those that can be trace to the
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immediate and remote environment of the bank these factors are manifest in the following
manner; the desire to get rich quick slow and complex legal process, poverty and the widening
gap between the rich and the poor, competition among bank staff, the desire to belong to any
social class, job insecurity, peer group pressure and societal expectations.