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EFFECT OF FRAUD ON COMMERCIAL BANK PERFORMANCE IN NIGERIA: 2000-2015
ABSTRACT
The research work is to examine the effect fraud on commercial banks performance in Nigeria, from 2000 to 2015. The data presented were derived from secondary sources. Specifically from the Nigeria deposit insurance corporation (NDIC). Annual report and statement of accounts, and the CBN banking supervision annual reports.The data presented was analyzed using Ordinary Least Square (OLS) regression technique. The result shows that fraud does not impact significantly on banks profitability. Based on the findings, the following policy recommendations are advocated.Monetary authorities (i.e CBN, NDIC) should be effective in their supervisory functions and regulatory roles to engender efficiency discipline and better service delivery by commercial banks in Nigeria.
TABLE OF CONTENTS
COVER PAGE……………………………………………………………………………………i
TITLE PAGE……………………………………………………………………………….…….ii
DECLARATION………………………………………………………………………….……..iii
CERTIFICATION………………………………………………………………………….…….v
DEDICATION…………………………………………………………………………….……..iv
ACKNOWLEDGEMENTS………………………………………………………………………vi
ABSTRACT…………………………………………………………………………….………vii
TABLE OF CONTENTS viii
CHAPTER ONE 1
INTRODUCTION 1
1.1 BACKGROUND OF THE STUDY 1
1.2 STATEMENT OF THE PROBLEM 3
1.3 OBJECTIVE OF THE STUDY 4
1.4 RESEARCH QUESTION 5
1.5 RESEARCH HYPOTHESIS 5
1.6 SCOPE/LIMITATION OF THE STUDY 6
1.7 SIGNIFICANCE OF THE STUDY 6
1.8 DEFINITION OF TERMS 8
CHAPTER TWO 10
LITERATURE REVIEW 10
2.1 THEORETICAL FRAMEWORK 11
2.1.1 THEORY OF FRAUD DIAMOND 11
2.1.2 THEORY OF FRAUD TRIANGLE 12
2.2 CONCEPTUAL REVIEW 12
2.2.1 NATURE, DIMENSION AND TYPES OF FRAUD 14
2.2.2 CAUSES OF FRAUD 19
2.2.3 CATEGORIES OF BANK FRAUD 25
2.2.4 EFFECT OF FRAUD ON COMMERCIAL BANKS PERFORMANCE 27
2.2.5 DETECTION OF FRAUD AND IMPORTANCE OF 33
2.2.6 METHODS OF PREVENTING BANK FRAUD 34
2.2.7 THE USE OF INTERNAL CONTROL SYSTEM IN 37
2.2.8 FRAUD PREVENTION AND CONTROL 39
2.2.9 GOVERNMENT’S ATTEMPT TO PREVENT BANK 40
2.2.10 THE ROLE OF CENTRAL BANK OF NIGERIA (CBN) 42
2.2.11 FRAUD RESOLUTION 43
2.3 EMPIRICAL REVIEW 44
2.4 EVALUATION/SUMMARY OF REVIEW 48
CHAPTER THREE 50
RESEARCH METHODOLOGY 50
3.1 INTRODUCTION 50
3.2 RESEARCH DESIGN 50
3.3 SOURCES OF DATA COLLECTION 51
3.4 MODEL SPECIFICATION 51
CHAPTER FOUR 54
DATA PRESENTATION AND DATA ANALYSIS 54
4.1 INTRODUCTION 54
4.2 DATA PRESENTATION 54
4.3 ANALYSIS OF RESULT 56
4.4 INTERPRETATION OF RESULTS Error! Bookmark not defined.
4.5 DISCUSSION OF FINDINGS Error! Bookmark not defined.
CHAPTER FIVE 60
5.0 SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION 60
5.1 SUMMARY OF FINDINGS 60
5.2 CONCLUSION 60
5.3 RECOMMENDATIONS 61
5.4 AREAS FOR FURTHER STUDY 63
REFERENCES 64
APPENDIX 69
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Fraud according to Adeniji (2004), and Asuquo (2005), is an intentional act by one or more individuals among management, employees or third parties which results in a misrepresentation of financial statement. Fraud has been defined as a deception deliberately practiced in order to secure unfair of unlawful gain. It is a deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage. The issue of insecurity and fraud in the banking sector. It is good to mention here that banks have no other asset to offer to customers except confidence, and the problem of fraud has affected the confidence negatively result in poor performance.
Ogbu (2003), stated that fraud is not unique to the banking sector but due to the product which the banks deal on cash and Nigeria is cash based economy, no area of banking system is immune to frausters, not even the operational security. The increasing rate of insecurity and fraud in the banking system, if not arrested might pose serious threats to the stability and survival of individual banks the performance of the industry as a who G.O Nwankwo, (1999). Lamenting on the ugly impact of insecurity and fraud in banks, the effect of insurgency is gradually destabilizing the banking structures. Banks are no longer safe and work environment is not secure for the workforce in the sector.
The effects of fraud on commercial bank includes;
Inability of commercial bank to perform statutory roles of financial intermediation effectively in the economy to enhance investment, productivity, income generation, growth of SMES, employment and contribution to gross domestic product.
Most commercial banks offer poor services to their customers and could not satisfy public expectation of effective financial services and therefore lose public transaction and savings deposits. Most commercial banks i.e the oceanic, all state trust bank, Afri Bank etc went into mergers by NDIC as large banks. While some other banks have gone distress and outright liquidation on account of fraud.
Most of the 23 existing commercial bank operating in Nigeria economy as at date rely on public deposits and as government fund are withdrawn into treasury single account (TSA) they are complaining of inadequate capital charging of arbitrary interest rates to cover for frauds and other insider abuses, that hinders efficient services and performance.
1.2 STATEMENT OF THE PROBLEM
In Nigerian banking subsector, commercial bank generally have been experiencing fraud and insider abuse that affect its services and contribution to growth of GDP. This affects the performance and profitability of banks and possibleand unveil immediate and remove causes of bank in Nigeria is one of the problem of continuous frauds in the commercial banks.
Fraud is a major challenge to the entire banking sub sector of the economy; no bank is immuned to it: Olorunsegun (2010). The banking public expects accountability, better services, transparency in their day to day operation of banks for effective intermediation. Accordingly since fraud deplete the resources of commercial banks and make them to run out of liquidity. It is on this premise, that the study will ascertain the extent to which fraudulent activities in commercial banks have caused non- performance and ineffectiveness of the banks.
1.3 OBJECTIVE OF THE STUDY
The general objective of this study is to examine the effects of fraud on commercial banks performance in Nigeria. To achieve this objective, the following specific objectives have been identified:
- To determine the value and trend of reported case of fraud in the banking industry.
- Examine the effect of frauds on commercial profitability
iii. To offer appropriate recommendation on the performance of banks in Nigeria
1.4 RESEARCH QUESTION
The following research question guided this study
1) What are the actual causes of bank fraud in Nigeria?
2) In what way do directors/managers contribute to bank frauds in Nigeria?
3) What are the effects of government and its agencies on bank fraud in Nigeria?
4) To examine the extent to which environmental or social factors contributed to bank fraud in Nigeria?
1.5 RESEARCH HYPOTHESIS
The following hypotheses are formulated to ascertain the validity of the research work as:
Ho: There is no significant relationship between commercial banks fraud and profitability of banks in Nigeria.
1.6 SCOPE/LIMITATION OF THE STUDY
This study centers on fraud in Nigeria commercial banking industry, with data covering 200-2015. The period covered in this study will have a time of ambitious financial sector reforms and institutions of anti-fraud measures to stabilize the banking sub-sector to perform its statutory role effectively in the economy. Therefore the research work would examine incidence of frauds/forgeries, insider abuses committed within the period been studied.
Also this research work is never free of obvious limitations; ranging from time factor, lack of access to some needy materials, and financial constrants to afford modern publications of CBN, NDIC, AMCON any banker journals to buttress this research work mean while, I accept any limitation or errors contained in this work, in my effort to produce a valid project that contributes to knowledge.
1.7 SIGNIFICANCE OF THE STUDY
This research work will be beneficial to the following groups:
Banks and financial institution: It will be beneficial to the authorities concern with banking operation, management, staff customers and prospective investor in the industry so as to identify various mean (Theft, embezzlement forgeries etc) employed in defrauding banks and to identify the cause of fraud in Nigeria banks.
Government: The government will find this work relevant to future policy and decision making with particular to restructuring its agency for better performance in detaching fraud in Nigeria banks.
General Public: the study will be useful to the general public because the banking industry touches the life of contributed immensely to the economic growth and development of nations, as such, problem such as fraud which can hinder the smooth operation of the banking industry should be viewed with all seriousness in other not to intercept or destroy the rate of development.
Academic: it will be beneficial to people who which to carry out further research in this area, to find this work relevant in their research.
1.8 DEFINITION OF TERMS
Fraud: fraud can be defined as a deceit or trick practiced in order to gain some advantages dishonestly.
Bank fraud: bank fraud is the use of potentially illegal means to obtain money, assets, or other property owned of held by a financial institution, or to obtain money from depositors by
CBN: This is the apex monetary authority that regulates controls and supervises the banking sub-sector of the economy.
NDIC: This is an acronym for Nigeria deposit Insurance Corporation. It is specially charged with the responsibility of protecting depositors by insuring customers deposit to the sum of N200,000.OO.
Perpetrator: A person who commits the act of fraud.
Distress: This is a condition when the banking system as awhole has negative capital and current profit are insufficient tocover losses to such an extent that the banking system is unable to generate internally positive capital.
Sharp practices: These are actions of abuses and fraudulent acts perpetrated by bank staff in connivance with outsiders to defraud a bank of its depositor’s fund.
AMCON: This is an acronym for asset management corporation of Nigeria created to be a key stabilizing and revitalizing tool establish to revive the financial system by efficiently resolving the non-performing loan assets of the banks in the Nigeria economy.
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