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ABSTRACT
Fraud is an epidemic dimension that has eaten deep into the banking sector as well as the entire economy. It’ devastating effect manifest itself in the deteriorating balance sheet of banks as well as in economic backwardness. As a result, measures to eradicate fraud in banking sector becomes a central focus of this study, was aimed at providing empirical evidence on the effect of fraud on performance of banks. Data for the analysis 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 student T-test statistical techniques 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 direction constitutes the major form of fraud in Nigeria government effort and its agencies have negatively impacted on combating fraud in Nigeria and environmental and social factors have negatively 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 fraud bank staff should be properly screened to test their morality and integrity before recruitment. Adequate internal control system should also be established to have checked and balances among bank staff it is envisaged that if all these are put in place, fraud will be reduced to its bearest minimum thereby restoring confidence to bank customers.
LIST OF TABLES
Table 1: – – – – – – – – – 52
Table 2: – – – – – – – – – 53
Table 3: – – – – – – – – – 54
Table 4: – – – – – – – – – 55
Table 5: – – – – – – – – – 55
Table 6: – – – – – – – – – 56
Table 7 – – – – – – – – – 57
TABLE OF CONTENTS
Title page – – – – – – – – – – i
Declaration – – – – – – – – – – ii
Certification – – – – – – – – – – iii
Acknowledgments – – – – – – – – – iv
Abstract – – – – – – – – – – v
List of tables, graph and figures – – – – – – – vi
Table of Contents – – – – – – – – – vii
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY – – – – – – 3
1.2 STATEMENT OF THE PROBLEM – – – – – – 6
1.3 OBJECTIVES OF THE STUDY – – – – – – 8
1.4 RESEARCH QUESTIONS – – – – – – – 9
1.5 RESEARCH HYPOTHESIS – – – – – – – 9
1.6 SIGNIFICANCE OF THE STUDY – – – – – – 9
1.7 SCOPE AND LIMITATION OF THE STUDY – – – 10
1.8 ORGANIZATION OF THE STUDY – – – – – 11
1.9 DEFINITION OF TERMS – – – – – – – 12
REFERENCES – – – – – – – – – 13
CHAPTER TWO
LITERATURE REVIEW
2.1 INTRODUCTION – – – – – – – – 14
2.2 THEORETICAL FRAMEWORK – – – – – – 14
2.3 CONCEPTUAL FRAMEWORK – – – – – – 17
2.3.1 CAUSES OF BANK FRAUD – – – – – – – 19
2.3.2 CATEGORIES OF BANK FRAUD – – – – – – 24
2.3.3 TYPES OF FRAUD – – – – – – – – 28
2.3.4 FRAUD AND ITS EFFECTS ON NIGERIA BANKS – – – 31
2.3.5 GOVERNMENT ATTEMPT TO PREVENT BANK FRAUD – – 33
2.3.6 WAYS TO PREVENT FRAUD – – – – – – 36
2.3.7 FRAUD RESOLUTION – – – – – – – 38
2.4 EMPIRICAL LITERATURE/STUDY – – – – 39
REFERENCES – – – – – – – – – 42
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 INTRODUCTION – – – – – – – – 43
3.2 RESEARCH DESIGN – – – – – – – 44
3.3 POPULATION OF THE STUDY – – – – – 44
3.4 SAMPLE PROCEDURE AND SAMPLING SIZE – – – 45
3.5 SOURCE OF DATA – – – – – – – – 46
3.6 DATA COLLECTION METHODS – – – – – – 47
3.6 RESEARCH INSTRUMENT – – – – – – – 48
REFERENCES – – – – – – – – – 50
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 INTRODUCTION – – – – – – – – 51
4.2 DATA PRESENTATION – – – – – – – 52
4.3 DATA ANALYSIS – – – – – – – – 53
4.4 HYPOTHESIS TESTING – – – – – – – 57
4.5 INTERPRETATION OF RESULTS – – – – – 58
4.6 DISCUSSION AND FINDING – – – – – – 61
REFERENCE – – – – – – – – 64
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 SUMMARY – – – – – – – – – 65
5.2 CONCLUSION – – – – – – – – – 66
5.3 RECOMMENDATION – – – – – – – – 67
BIBLIOGRAPHY – – – – – – – – 69
APPENDIX 1 – – – – – – – – 73
APPENDIX II – – – – – – – – 74
CHAPTER ONE
INTRODUCTION
The banking sector has become one of the most critical sectors in the economy with wide effect on the level and direction of economy 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.
The Nigeria deposit insurance corporation (NDIC) 2007 annual report and statement of accounts report that causes 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 N10 billion compare with 1,193 reported cases of fraud and forgeries involving 4,832.17 billion in the year 2006. The forgoing statistics clearly unfolds the extent to which fraud 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 monsters called banks 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.
Infact, some banks failed even before they open for business, what kept many bank up for the period of 3-5 years is that they lasted their ability to deceived the banking public and hoodwink the central bank of Nigeria.
In order to minimize, it is not eradicate, the incidence of fraud in banks, the federal government of Nigeria had promulgate the advance fee fraud and other offences decree in 1995 whereby a failed bank tribunal was set up to prosecute offenders as regards financial malpractices within the banking sector.
1.1 BACKGROUND TO 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 purpose of expanding their productive capacity.
Fraud however has been defined by many scholars Olufidipe (1994) defined fraud as deficit or trick deliberately practice in order to gain some advantages dishonestly”. According to Boniface (1991), fraud is described as “any premeditated act of criminal’s deceit, trickery or falsification by a person or group of persons with the intention of altering facts in order to obtain undue personal monetary advantages”. 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) defined fraud as any person who pretends to be something that he is not is a fraud, a stare, a deceptive trick, cheat and a swindler.
Having explained what fraud is, it is pertinent to defined 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 fraudulent 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, fraud in Nigeria cannot be restricted to the banks alone. A lot of fraudulent activities are prevalent in Nigeria economy ranging from bloody killings, ritual, kidnapping, robberies, forgery, misappropriation, cheating and gansters and sooting. Bank frauds 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. Collaborating the view of Oseni, Idolor (2010), stressed that the spate of fraud in Nigeria 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 fraud 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).
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 given 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.
1.2 STATEMENT OF THE PROBLEM
Banks generally have been experiencing fraud since its evolution. This affects the performance and profitability of banks and may possibly lead to distress. The inability to identify the immediate and remote causes of continuous cases of banks fraud in virtually all banks in Nigeria is one of the problems brought to bear.
Fraud is a major challenge to the entire banking industry; no bank is immune to it and in all facts of life (Olorunsegun, 2010). The banking public expects accountability, fairness, transparency in their daily operation for effective intermediation.
Though, there were known cases of fraud in the sector, one major question still remains 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 banks is possible with corroboration of an insider. The banks are expected to ensure that they carryouttheir responsibilities with sincerity of purpose which is devoid of fraudulent practices. This is relevant if the banking sector is to gain public trust and good will.
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 hearable 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 malpractice in banks of failed banks, dishonouredcheques acts 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 banks 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 immediate and remote environmental 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.
1.3 OBJECTIVES OF THE STUDY
The general objectives of this study is to identify bank fraud and its effect on bank performance in Nigeria but the general objectives of this study are:
1. To ex-ruyed bank fraud and performance.
2. To examined the extend of influence.
3. Bank fraud has on performance
1.4 RESEARCH QUESTIONS
The following questions guided this study;
1. Would bank fraud affects performance?
2. To what extent would bank fraud impeded performance?
3. Would increase incident of bank fraud impeded performance
1.5 RESEARCH HYPOTHESIS
Ho: There is no correlative between bank fraud and performance.
Ho: Bank fraud would not influence performance Negatively.
1.6 SIGNIFICANCE OF THE STUDY
This research work will be beneficial to the following groups;
a. Banks and financial institutions: It will be beneficial to the authorities concern with banking operations, managements, staff customer and prospective investors in the industry so as to identify the various means (theft, embezzlement, forgeries etc) employed in defrauding banks and to identify the cause of frauds in banks in Nigeria.
b. Government: The government will find this work relevant to future policy and decision making with relevant to future policy and decision making with particular to restructuring its agencies for better performance in detaching fraud in Nigeria banks.
c. General Public: The study will be useful to the general public because, the banking industry touches the life of everyone in an economy. Banks all over the world have contributed immensely to the economic growth and development of nations. As such problems, such as fraud which can hinder the smooth operation of the banking industry should be viewed with al seriousness in order not to intercept or destroy the rate of development.
d. Academic: It will also be beneficial to people who which to carryout further research in this area to find this work relevance in their research.
1.7 SCOPE AND LIMITATION OF THE STUDY
This study centres on fraud in the Nigeria banking industry with a keen interest on five (5) insured banks with data covering 2002 – 2011. The five insured banks covered includes; First Bank of Nigeria Plc, Union Bank of Nigeria Plc, United Bank for Africa Plc, Diamond Bank Plc, Zenith Bank Plc, all in Enugu State, Oparah Avenue branch. To achieve the objectives of this study, primary and secondary data were used. Sixty-five (65) questionnaires were administered to the study respondents that were purposively selected from five (5) insured banks in Enugu.
Bank fraud and its effect on the performance of banks is an extensive topic that may involve commercial banks and community banks. The researcher will like to touch all aspects of banking activities, but for lack of time and financial constraints, the researcher limit his work to frauds in five (5) insured banks.
1.8 ORGANIZATION OF THE STUDY
This study has been organized into five chapters. Chapter one is introduction, which examines the background of the study, statement of the problem as well as the objectives of the study; among others. The second chapter is the literature review, which examines the conceptual and theoretical background to the subject matter under study. It is basically concerned with the contributions of other scholars on the subject matter of the study. Chapter three is the methodology, which highlights the research design, sample size and sampling techniques, as well as method of data collections, among other in chapter four the data collected by the researcher is presented and analyzed and the findings discussed, while the summary of findings, conclusion and recommendations are addressed in chapter five, which is the last chapter.
1.9 DEFINITION OF TERMS
Fraud: Fraud can be defined as a deceit or trick deliberately practiced in order to gain some advantages dishonestly.
Bank Fraud: Bank fraud is defined as 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.
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 tune of N200,000.9.
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