Full Project – Design and implementation of a fraud detection and control system

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CHAPTER ONE

INTRODUCTION

• Background of Study

One of the key challenges with the introduction of Information Technology in the banking sector is dealing with fraud.  Fraud is a ‘cankerworm’ that has eaten deep into the nation’s fabrics.  It is visible in all the sectors of the economy with the financial institutions, particularly banks being the worst hit.  In the financial sector, fraud is an offshoot of financial crimes which covers offences, which are security related and involves the movement, transfer or use of monetary instruments in circumstances which render such acts unlawful.

Fraud is an act or course of deception deliberately practiced to gain unlawful or unfair advantage to the detriment of others or states.  Frauds in banks are not new, in fact it is as old as the industry itself.  However, in recent times, the practice has assumed an alarming proportion.  Sometimes, the act is carried out by outsiders while in most cases, there is a collaborated effort between outsiders and the staff to perpetrate these financial crimes.  There is a growing awareness about the need for bank data security and robust measures to prevent fraud.  This is evident in the fact that, one only have to glance at a few titles streaming over technology and business news feeds to find stories of massive privacy breaches, Denial of Service (DoS), and concerted hacking and cracking of databases (Metteo, 2011).

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The wide array of threats that banks face do not, however, always originate from the outside. Insider collaboration and threats are the most difficult to prevent and the most costly to recover from. Insiders, such as employees, contractors, consultants, and even trusted business partners, can exploit the privileges and knowledge they have acquired about the banks operations and practices to commit fraud, violate privacy protection, and steal valuable confidential information and divulge same to competitors(Stella, 2012).  They also support, cover up and fly counterfeit cheques, altered cheques, forged signatures and organized financial crimes in banks where they work.

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Against this backdrop, governments at different levels and banks have device some measures to deal with fraud in the financial sector especially the setting up of various monitoring and control commissions and fora such as EFCC, ICPC, NeFF just to mention but a few.  Most banks have also strengthened their internal fraud control and prevention system with the few to minimizing fraud in such banks where complete eradication is not possible.  Basic control measures such as authentication,  authorization, use of firewalls and network access controls are inadequatein guiding against financial fraudsparticularly those perpetrated by insiders, hence the need for more robust fraud internal control mechanisms in banks .

In view of the above, this research work is focused on the designed and implementation of fraud detection and control system for commercial banks to detect and control the occurrences of fraud in banks where the system is deployed.

1.2Statement of Problems

The following problems are associated with the current banking systems:

1. Inability of banks to detect and preempt fraudulent transactions before they are successfully completed.
2. Inadequate internal fraud control mechanism to protect the system against unauthorized, fraudulent or erroneous debit activities.
3. Lack of a systems that could promptly alert customers of attempted fraud relating to their accounts to trigger immediate actions that could frustrate such attempts.
4. Inadequate measures by banks to sufficiently trace frauds to offenders and get them apprehended for prosecution.

• Aim and Objectives of Study

The aim of this research work is to design and implementa frauddetection and control system for use by commercial banks.  The objectives of the study include:

1. To provide a platform that will enable banks to detect and preempt fraudulent transactions before they are successfully completed thereby reducing incidences of fraud in the bank.
2. To provide internal fraud control mechanismin banks to protect their systems against unauthorized, fraudulent or erroneous debit activities.
3. To provide a systems that could promptly alert customers of attempted fraud relating to their accounts to trigger immediate actions that could frustrate such attempts.
4. To provide a platform that will enable banks to sufficiently trace frauds to the offenders and get them apprehended for prosecution.

• Scope and Limitations of the Study

The scope of the research work is to track both online and offline transactions for a holistic picture of data monitoring. The solution monitors transactions from both traditional and emerging delivery channels such as POS, ATM terminals, e-commerce, m-commerce and so forth by tracking fraud-related transaction patterns for scrutiny before payment approvals are granted or otherwise.

This could lead to placing suspicious transactions in the monitoring queue for further investigation, especially when the daily transaction limit is exceeded for both credit and debit.  Moreover, when suspicious transaction activity is detected, the system sends alerts to issuers, acquirers, or cardholders by email or SMS text to confirm such before approvals are granted.

The limitations of the study is that due to high cost of some specialized equipment, it was difficult to incorporate more sophisticated infrastructures scanners and sensors  that could support a more robust fraud detection and monitoring on real-time bases.

1.5     Significance of the Study

The significance of the study includes the following:

1. Provide a platform that will enable banks to detect and preempt fraudulent transactions before they are successfully completed thereby reducing incidences of fraud in the bank.
2. Provision of internal fraud control mechanismin banks to protect their systems against unauthorized, fraudulent or erroneous debit activities.

• Provision of a system that could promptly alert customers of attempted fraud relating to their accounts to trigger immediate actions that could frustrate such attempts.

1. Provision of a platform that will enable banks to sufficiently trace frauds to the offenders and get them apprehended for prosecution.

1.6     Organization of the Work

The research work is organized into five chapters as outlined below following the different stages of software development lifecycle (SDLC).

Chapter One – Introduction where the background of the study for the research is provided, together with the aim and objectives clearly stated as well as the problems to be addressed. Chapter Two- Literature Review provides a detailed review of related research works conducted in the past, their achievements and challenges as well as the analysis of the current situation at the case study with the view to providing solutions.

Chapter Three – Research Methodology outlines the method used in the research, its sources of data and methods of analysis as well as research findings.  It also presents the software design, its development, testing/debugging and implementation procedures.  Chapter Four – Results and Discussions takes a detail presentation of research results/findings, interpretations and discussions.  Finally, Chapter Five being Summary, Recommendations and Conclusion summarizes the entire work with relevant concluding remarks and recommendations.

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Full Project – Design and implementation of a fraud detection and control system